Haw Pia vs. China Banking

PHILIPPINE REPORTS ANNOTATED VOLUME 080 9/4/21, 8:05 PM PHILIPPINE REPORTS ANNOTATED VOLUME 080 9/4/21, 8:05 PM
VOL. 80, APRIL 7, 1948 605
Haw Pia vs. China Banking Corporation
tion or appropriation by the belligerent occupant not only of

public but also of private property of the enemy in a
territory occupied by the belligerent hostile army; and as
63
such usage or practice was allowed, a fortiori, any other act
short of confiscation was necessarily permitted. Section III
HAW PIA, plaintiff and appellant, vs. THE CHINA of the Hague Regulations only prohibits the confiscation of
BANKING CORPORATION, defendant and appellee. private property by order of the military authorities (art.
46), and pillage or stealing and thievery thereof by
1. INTERNATIONAL LAW; LAND WARFARE; THE HAGUE individuals (art. 47); and as regards public property, article
REGULATIONS; UNFORESEEN CASES.·The provisions 53 provides that cash funds, and property liable to
of the Hague Regulations, section III, on Military Authority requisition and all other movable property belonging to the
over Hostile Territory, which is a part of the Hague State susceptible of military use or operation, may be
Convention respecting the laws and customs of war on land, confiscated or taken possession of as a booty and utilized for
are intended to serve as a general rule of conduct for the the benefit of the invader's government (II Oppenheim, 8th
belligerents in their relations with each other and with the ed., sec., 137; 320 & 321, War Department; Basic Field
inhabitants, but as it had not been found possible then to Manual, Rules of Land Warfare FM 27-10). The belligerents
concert regulations covering all the circumstances which in their effort to control enemy property within their
occur in practice, and on the other hand it could not have jurisdiction or in territories occupied by their armed forces
been intended by the High Contracting Parties that the in order to avoid their use in aid of the enemy and to
unforeseen cases should, in the absence of a written increase their own resources, after the Hague Convention
undertaking, be left to the arbitrary judgment of military and specially during the first World War, had to resort to
commanders, it was agreed that "Until a complete code of such measures of prevention which do not amount to a
the laws of war has been issued, the High Contracting straight confiscation, as freezing, blocking, placing under
Parties deem it expedient to declare that in cases not custody and sequestrating the enemy private property. Such
included in the Regulations adopted by them, the acts are recognized as not repugnant to the provisions of
inhabitants and the belligerents remain under the article 46 or any other article of the Hague Regulations by
protection and the rule of the principles of international law, well-known writers on International Law, and are
as they result for the usages established among civilized authorized not only in the Army and Navy Manual of
peoples, from the laws of humanity, and the dictates of Military Government and Civil Affairs not only of the
public conscience." United States, but also in similar manuals of Army and
Navy of other civilized countries, as well as in the Trading
2. ID. ; ID.; ID.; ID.; RIGHTS OF BELLIGERENT with the Enemy Acts of said countries.
OCCUPANT OVER ENEMY PUBLIC OR PRIVATE
PROPERTY.·Before the Hague Convention, it was the 3. ID.; ID.; ID.; ID.; ID.; SEQUESTRATION, PURPOSE OF.
usage or practice to allow or permit the confisca ·The purpose of sequestration is well expounded in the
Annual Report of the Office of the Alien Custodian for a
period from March 11, 1943, to June 30, 1943. "In the
605
absence of effective measures of control, enemy-owned
property can be used to further the interest of the enemy
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and to impede our own war effort. All enemy-controlled ACT OF UNITED STATES AND OTHER COUNTRIES
assets can be used to finance propaganda, espionage, and APPLICABLE IN OCCUPIED HOSTILE TERRITORY.
sabotage in this country or in countries friendly to our ·The Trading with the Enemy Act of the United States,
cause. They can be used to acquire stocks of strategic like that of the United Kingdom or Great Britain, and those
materials and supplies * * * use to the enemy, they will be of other countries, may be applied and enf orced in a hostile
diverted from our own war effort," and the national saf ety territory occupied by the United States armed forces,
requires the prohibition of all unlicensed communication, because section 2 of said Act provides "That the words
direct or indirect, with enemy and enemy-occupied 'United States,' as used herein, shall be deemed to mean all
territories. To the extent that this prohibition is effective, land and water, continental or insular, in any way within
the residents of such territory are prevented from exercising the jurisdiction of the United States or occupied by the
military or naval forces thereof." After the liberation of the
Philippines during World War II, properties belonging to
606 Japanese nationals located in this country were taken
possession of by the Alien Property Custodian appointed by
the President of the United States under the Trading with
606 PHILIPPINE REPORTS ANNOTATED
the Enemy Act, because, although the Philippines was not a
Haw Pia vs. China Banking Corporation territory or within the jurisdiction or national domain of the
United States, it was then occupied by the military and
the rights and responsibilities of ownership over property naval forces thereof.
located in the United States. Meanwhile, decisions affecting
the utilization of such property must be made and carried 6. ID.; ID.; ID.; ID.; ID.; ID.; ID.; DIFFERENCE BETWEEN
out. Houses must be maintained and rents collected; OBLIGATIONS OF UNITED STATES ARISING FROM
payments of principal and interest on mortgages must be APPLICATION OF TRADING WITH THE ENEMY ACT
made for the account of foreign debtors and foreign WITHIN NATIONAL DOMAIN AND WITHIN OCCUPIED
creditors; stranded stocks of material and equipment must HOSTILE TERRITORY.·The obligations assumed by the
be sold; patents must be licensed, business enterprises must United States, in applying the Trading with the Enemy Act
of the United States to properties within her national
be operated or liquidated, and foreign interest must be
domain, is different and distinct from those arising from the
represented in court actions. The number of decisions to be
appli
made in connection with property is in fact multiplied by a
state of war, which requires that productive resources be
shifted from one use to another so as to conform with the
607
requirements of a war economy."
4. ID.; ID.; ID.; ID.; ID.; ID.; "ENEMY," MEANING OF; CASE VOL. 80, APRIL 9, 1948 607
AT BAR.·The defendant-appellee, China Banking
Corporation, comes within the meaning of the word "enemy" Haw Pia vs. China Banking Corporation
as used in the Trading with the Enemy Acts of civilized
countries, because not only it was controlled by Japan's cation thereof to enemy properties located within the hostile
enemies,, but it was, besides, incorporated under the laws of territory occupied by her armed forces. In the first case,
a country with which Japan was at war. Congress is untramelled and free to authorize the seizure,
use, or appropriation of such properties without any
5. ID.; ID.; ID.; ID.; ID.; ID.; TRADING WITH THE ENEMY compensation to the owners, for although section 2 of the

Trading with the Enemy Act provides that "at the end of the BANKS NOT A CONFISCA
war any claim of any enemy or of an ally of enemy to any
money or other property received and held by the alien
property custodian or deposited in the United States 608
Treasury shall be settled by Congress," the owners of the

properties seized within the national domain of the United
States are not entitled to demand its release or
compensation for its seizure, but what would ultimately Haw Pia vs. China Banking Corporation
come back to them, might be secured, not as a matter of
right, but as a matter either of grace to the vanquished or TION; CASE AT BAR.·Taking into consideration the acts
exacted by the victor, for the case is to be governed by the of the Japanese Military Administration in treating the
domestic laws of the United States, and not by the Hague private properties of the so-called enemy banks, it appears
Regulations or International Law (U. S. vs. Chemical evident that Japan did not intend to confiscate or
Foundation, Inc., 272 U. S., 1; United States vs. S. S. White appropriate the assets of said banks or the debts due them
Dental Manufacturing Company, 274 U. S. 402). While in from their debtors, and thus violate article 46 or any other
the latter case, when properties are sequestered in a hostile article of the Hague Regulations. It is true that, as to
occupied territory by the armed forces of the United States, private personal properties of the enemy, freezing, blocking
Congress can not legally refuse to credit the compensation or impounding thereof is sufficient for the purpose of
for them to the States of the owners as payment on account preventing their being used in aid of the enemy; but with
of the sums payable by said States under treaties, and the regard to the funds of commercial banks like the so-called
owners have to look for compensation to their States, enemy banks, it was impossible or impracticable to attain
otherwise, they would violate article 46 of the Hague the purpose for which the freezing, blocking and
Regulations or their pledge of good faith implied in the act impounding are intended, without liquidating the said
of sequestrating or taking control of such properties. banks and collecting the loans given by them to hundreds if
not thousands of persons scattered over the Islands.
7. ID.; ID.; ID.; ID.; ID.; ID.; ID.; JAPAN, RIGHT OF, TO Without doing so, their assets or money loaned to so many
SEQUESTRATE AND LlQUIDATE ENEMY BANKS; CASE persons can not properly be impounded or blocked, in order
AT BAR.·It is to be presumed that Japan, in sequestrating to prevent their being used in aid to the enemy though the
and liquidating the China Banking Corporation, must have intervention of their very debtors, and successfully wage
acted in accordance, either with her own Manual of the economic as well as military war. That the liquidation or
Army and Navy and Civil Affairs, or with her Trading with winding up of the business of the China Banking
the Enemy Act, and even if not, it being permitted to the Corporation and other enemy banks did not constitute a
Allied Nations, specially the United States and England, to confiscation or appropriation of their properties or of the
sequestrate, impound, and block enemy properties found debts due them from their debtors, but a mere sequestration
within their own domain or in enemy territories occupied of their assets during the duration of the war for the
during the war by their armed forces, and it being not purposes already stated, is evidenced conclusively by the
contrary to the Hague Regulations or international law, facts enumerated in the opinion.
Japan had also the right to do the same in the Philippines
by virtue of the international law principle that "what is 9. ID.; ID.; ID.; ID.; ID.; ID.; ID.; OWNERS OF PROPERTIES
permitted to one belligerent is also allowed to the other." SEQUESTRATED, How INDEMNIFIED.·The fact that
Japanese Military authorities failed to pay the enemy banks
8. ID.; ID.; ID.; ID.; ID.; ID.; ID.; ID.; LIQUIDATION BY the balance of the money collected by the Bank of Taiwan
JAPANESE MILITARY ADMINISTRATION OF ENEMY

from the debtors of said banks, did not and could not change OF CORPORATION; CASE AT BAR.·As the Japanese
the sequestration or impounding by them of the bank's asset Military Forces had power to sequestrate and impound the
during the war, into an outright confiscation or assets or funds of the China Banking Corporation, and for
appropriation thereof. Aside from the fact that it was that purpose to liquidate it by collecting the debts due to
physically impossible for the Japanese Military authorities said bank from its debtors, and paying its creditors, and
to do so because they were forcibly driven out of the therefore to appoint the Bank of Taiwan as liquidator with
Philippines or annihilated by the forces of liberation, the consequent authority to make the collection, it follows
following the readjustment of rights of private property on evidently that the payments by the debtors to the Bank of
land seized by the enemy provided by the Treaty of Taiwan of their debts to the China Banking Corporation
Versailles and other peace treaties entered into at the close have extinguished their obligation to the latter. Said
of the first World War, the general principles underlying payments were made to a person, the Bank of Taiwan,
such arrangements are that the owners of properties seized, authorized to receive them in the name of the bank creditor
sequestrated or impounded who are nationals of the under article 1162, of the Civil Code. Because it is evident
victorious belligerent are entitled to receive compensation the words "a person authorized to receive it," as used
for the loss or damage inflicted on their property by the therein, means not only a person authorized by the same
emergency war measures taken by the enemy, through their creditor, but also a person authorized by law to do so, such
respective States as guardian, executor or administrator of estate of a
deceased, and assignee or liquidator of a partnership or
corporation, as well as any other who may be authorized to
609 do so by law (Manresa, Civil Code, 4th ed., p. 254).
11. ID.; ID.; JAPANESE WAR NOTES; LACK OF

VOL. 80, APRIL 9, 1948 609
STIPULATION LIMITING PAYMENT TO DEFINITE
Haw Pia vs. China Banking Corporation SPECIES OF MONEY.·The fact that the money with
which the debts have been paid were Japanese war notes
or Government who may officially intervene and demand does not affect the validity of the payments. The provision of
the payment of the claim on behalf of their nationals (VI article 1170 of our Civil Code to the effect that "payment of
Hackworth Digest of International Law, pp. 232, 233; II debts of money must be made in the specie stipulated and if
Oppenheim, sixth edition, p. 263). Naturally, as the it is not possible to deliver such specie in silver or gold coins
Japanese war notes were issued as legal tender for payment which is a legal tender," is not applicable to the present
of all kinds at par with the Philippine peso, by the Imperial case, because the contract between the parties was to pay
Japanese Government, which in its proclamations of Philippine pesos and not some specifically defined species
January 3, 1942, and February 1, 1942, "takes full
responsibility for their usage having the correct amount to
610
back them up" (see said Proclamations and their official
explanation, O. T., IMA Vol. 1, pp. 39, 40), Japan is bound to
indemnify the aggrieved banks for the loss or damage on 610 PHILIPPINE REPORTS ANNOTATED
their property, in terms of Philippine peso or U. S. dollars at
the rate of one dollar for two pesos. Haw Pia vs. China Banking Corporation
10. OBLIGATIONS AND CONTRACTS; PAYMENT; of money. The Philippine peso and half-pesos including the
"PERSONS AUTHORIZED TO RECEIVE"; LIQUIDATOR Philippine Treasury Certificate was and is the legal tender

in the Philippines under section 612 of the Administrative Law of Belligerent Occupation, par. 6), but on Military
Code, as amended by Act No. 4199. As well stated by the necessity as shown by the history of the use of money or
Supreme Court of the United States in Knox vs. Lee and currency in wars, related in the decision.
Parker (Legal Tender Cases, 12 Wall., 457-681; 20 Law. ed.,
287). "The expectation of the creditor and the anticipation of
the debtor may have been that the contract would be 611
discharged by the payment of coined metals, but neither the

expectation of one party to the contract, respecting its
VOL. 80, APRIL 9, 1948 611
fruits, nor the anticipation of the other, constitutes its
obligation. There is a well-recognized distinction between Haw Pia vs. China Banking Corporation
the expectation of the parties to a contract and the duty
imposed by it. Aspdin vs. Austin, 5 Ad. & Bl. (N. S.) 671; 13. ID.; ID.; ID.; THREE METHODS ADOPTABLE BY
Dunn vs. Sayles, Ibid., 685; Coffin vs. Landis, 46 Pa., 426. MILITARY OCCUPANT.·According to Feilchenfeld in his
Were it not so, the expectation of results would be always book "The International Economic Law of Belligerent
equivalent to a binding engagement that they should follow. Occupation," the occupant in exercising his powers in regard
But the obligation of contract to pay money is to pay that to money and currency, may adopt one of the following
which the law shall recognize as money when the payment methods according to circumstances: (1) When the coverage
is to be made. If there is anything settled by decision it is of the currency of the territory occupied has become
this, and we do not understand it to be controverted." (Know inadequate as found in several Balkan countries during the
vs. Exchange Bank of Virginia, 12 Wall., 457; 20 U. S. War of 1914-18, and "the local currency continues to be
Supreme Court Reports, 20 Law. ed., 287, 311.) In said case used, an occupant may reorganize the national currency by
it was held that the Legal Tender Acts of Congress which appropriate methods, such as the creation of new types and
made the treasury notes legal tender for payment of debts supplies of coverage" (paragraph 272). (2) The occupant,
contracted before and after their passage were not may, and not infrequently, use his own currency, in the
inappropriate for carrying into execution the legitimate occupied region. But this method may be found inconvenient
purpose of the Government, And this court, in Rogers vs. if the coverage for their national currency had already
Smith Bell (10 Phil., 319), held that "A debt of 12,000 pesos become inadequate, and for that reason authorities are
created in 1876 can now (1908) be paid by 12,000 of the afraid of exposing it to additional strain, and for that reason
Philippine pesos authorized by the Act of Congress of March an occupant may not replace the local currency by his own
2, 1903, although at the time the loan was made which currency for all currency for all purposes, and enforce its
created the debt, the creditor delivered to the debtor 12,000 use not only for his own payment but also for payments
pesos in gold coin." among inhabitants (paragraph 285). (3) Where the regional
currency has become inadequate and it is deemed
12. INTERNATIONAL LAW; BELLIGERENT OCCUPATION; inadvisable by the occupant to expose his own currency to
POWER OF MILITARY GOVERNMENT TO ISSUE further strain, new types of money may be created by the
CURRENCY.·The power of the military governments occupant. Such new currency may have a new name and
established in occupied enemy territory to issue military may be issued by institution created for that purpose
currency in the exercise of their governmental power has (paragraph 296). This last method was the one adopted by
never been seriously questioned. Such power is based, not Japan in this country, because the coverage of the
only on the occupant's general power to maintain law and Philippine Treasury Certificate .of the territory occupied
order recognized in article 43 of the Hague Regulations had become inadequate, for most if not all the said coverage
(Feilchenfeld says in his treatise on International Economic have been taken to the United States and many millions of

silver pesos were burried or thrown into the sea near the said appellant, and in the answer it set up a counter
Corregidor, and Japan did not want to use her national claim against the plaintiff-appellant demanding the
currency, and expose it to additional strains. payment, within 90 days from and after the date Executive
Order No. 32 on moratorium, series of 1945, has been
APPEAL from a judgment of the Court of First Instance of repealed, of said amount due from the. latter to the former
Manila. Ocampo, J. by way of overdraft together with its interests at the rate of
The facts are stated in the opinion of the court, 9 per cent per annum to be compounded monthly, and the
Fidel J. Silva for appellant. additional sum of P1,500 as attorney's fees and the costs of
Ross, Selph, Carrascoso & Janda for appellee. the suit.
DeWitt, Perkins, & Ponce Enrile; Gibbs, Gibbs, Chuidian After the hearing of the case, the trial court rendered a
& Quasha; Ramon Diokno and Jose W. Diokno; Claro M. decision holding that, as there -was no evidence presented
Recto and Allan A. O'Gorman, as amici curiÕ. to show that :the. defendant China Banking Corporation
612
had authorized the Bank of Taiwan, Ltd., to accept the
payment of the plaintiff's debt to 'the said defendant, and
said Bank
613
FERIA, J.; VOL. 80, APRIL 9, 1948 613

Plaintiff-appellant instituted this action in the Court of
First Instance of Manila against the defendant-appellee, of Taiwan, as an agency of the Japanese invading army,
China Banking Corporation, to compel the latter to execute was not authorized under the international law to liquidate
a deed of cancellation of the mortgage on the property the business of the China Banking Corporation, the
described in the complaint, and to deliver to the said payment has not extinguished the indebtedness of the
plaintiff the Transf er Certificate of Title No. 47634 of the plaintiff to the said defendant under article 1162 of the
Register of Deeds of Manila, with the mortgage annotated Civil Code. The court absolved the defendant China
therein already cancelled, as well as to pay the plaintiff the Banking Corporation from the complaint of the plaintiff,
sum of P1,000.00 for damages as attorney's fees and to pay and sentenced the latter to pay the former the sum of
the costs of the suit. The cause of action is that the P5,103.35 with interests within the period of 90 days from
plaintiff's indebtedness to the China Banking Corporation and after the above mentioned Executive Order No. 32 had
in the sum of P5,103.35 by way of overdraft in current been repealed or set aside, and ordered that, if the plaintiff
account payable on demand together with its interests, has failed to pay it within the said period, the property
been completely paid, on different occasions, from October mortgaged shall be sold at public auction and the proceeds
7, 1942, to August 29, 1944, to. the defendant China of the sale applied to the payment of said obligation. The
Banking Corporation through the defendant Bank of plaintiff appealed from the decision to this Court.
Taiwan, Ltd., that was appointed by the Japanese Military The appellant's assignments of error may be reduced to
authorities as liquidator of the China Banking Corporation. two, to wit: First, whether or not the Japanese Military
Upon having been served with summons the Administration had authority to order the liquidation or
defendantappellee China Banking Corporation made a winding up of the business of defendant-appellee China
demand from the plaintiff-appellant for the payment of the Banking Corporation, and to appoint the Bank of Taiwan
sum of P5,103.35 with interests representing the debt of

liquidator authorized as such to accept the payment by the adopted by them, the inhabitants and the belligerents
plaintiff-appellant to said defendant-appellee; and second, remain under the protection and the rule of the principles
whether or not such payment by the plaintiff-appellant has of international law, as they result for the usages
extinguished her obligation to said defendant-appellee. established among civilized peoples, f rom the laws of
(1) As to the first question, we are of the considered humanity, and the dictates of public conscience."
opinion, and therefore hold, that the Japanese military Before the Hague Convention, it was the usage or
authorities had power, under the international law, to order practice to allow or permit the confiscation or appropriation
the liquidation of the China Banking Corporation and to by the belligerent occupant not only of public but also of
appoint and authorize the Bank of Taiwan as liquidator to private property of the enemy in a territory occupied by the
accept the payment in question, because such liquidation is belligerent hostile army; and as such usage or practice was
not a confiscation of the properties of the bank appellee, allowed, a fortiori, any other act short of confiscation was
but a mere sequestration of its assets which required the necessarily permitted. Section III of the Hague Regulations
liquidation or winding up of the business of said bank. All only prohibits the confiscation of private property by order
the arguments to the contrary in support of the decision of the military authorities (article 46), and pillage or
appealed from are predicated upon the erroneous stealing and thievery thereof by individuals (article 47);
assumption that the liquidation or winding up of the affairs and as regards public property, article 53 provides that
of the China Banking Corporation, in order cash funds, and property liable to requisition and all other
movable property belonging to the State susceptible
614
615

VOL. 80, APRIL 9, 1948 615
to determine its liabilities and net assets to be sequestrated
or controlled, was an act of confiscation or appropriation of of military use or operation, may be confiscated or taken
private property contrary to Article 46, section III of the possession of as a booty and utilized for the benefit of the
Hague Regulations of 1907. invader's government (II Oppenheim, 8th ed. section 137;
The provisions of the Hague Regulations, section III, on 320 & 321, War Department; Basic Field Manual, Rules of
Military Authority over Hostile Territory, which is a part of Land Warfare FM 27-10). The belligerents in their effort to
the Hague Convention respecting the laws and customs of control enemy property within their jurisdiction or in
war on land, are intended to serve as a general rule of territories occupied by their armed forces in order to avoid
conduct for the belligerents in their relations with each their use in aid of the enemy and to increase their own
other and with the inhabitants, but as it had not been resources, after the Hague Convention and specially during
found possible then to concert regulations covering all the the first World War, had to resort to such measures of
circumstances which occur in practice, and on the other prevention which do not amount to a straight confiscation,
hand it could not have been intended by the High as freezing, blocking, placing under custody and
Contracting Parties that the unforeseen cases should, in sequestrating the enemy private property. Such acts are
the absence of a written undertaking, be left to the recognized as not repugnant to the provisions of Article 46
arbitrary judgment of military commanders, it was agreed or any other article of the Hague Regulations by wellknown
that "Until a complete code of the laws of war has been writers on International Law, and are authorized in the
issued, the High Contracting Parties deem it expedient to Army and Navy Manual of Military Government and Civil
declare that in cases not included in the Regulations Affairs not only of the United States, but also in similar

manuals of Army and Navy of other civilized countries, as the absence of efforts to compensate the owners."
well as in the Trading with the Enemy Acts of said
countries. And in the footnote of the same page, said author adds:
Hyde in his International Law chiefly as interpreted and
"This analysis differs sharply from that of those who would regard
applied by the United States, Vol. 3, 6th ed., p. 1727, has
almost all uncompensated deprivations of property as essentially
the f ollowing to say:
confiscatory, and as, therefore, internationally illegal because of the
"In examining the efforts of a belligerent to control in various ways further assumption or conclusion that confiscatory action must
property within its domain that has such a connection with inevitably be so regarded. Belligerent States have not, however,
nationals of the enemy that it may be fairly regarded as enemy generally acted on such a theory. They have in fact proceeded,
property, it is important to inquire whether the attempt is made to especially since 1914, to exercise varying degrees of control over
appropriate property without compensation, divesting him not only vast amounts of enemy private property by strictly non-confiscatory
of title, but also of any right or interest in what is taken, without processes from which they have felt no sense of legal obligation to
prospect of reimbursement, or whether those efforts constitute an abstain. In so doing they have been creative of relatively fresh
assumption of control which, regardless of any transfer of title, is practices which logic has ordained and war-terminating treaties
not designed to produce such a deprivation. The character of the have sanctioned. Thus it happens that proper estimation of the
belligerent acts in the two situations is not identical. To refer to place of confiscation of enemy private property in the law of nations
both as confiscatory is not productive of clearness of thought, unless has become of less importance than formerly, because both of the
a loose and broad signification be attached to the term 'confiscation.' reluctance of States·and notably of the United States to have
The point to be noted is that a belligerent may in fact deprive an recourse to it, and of their preference for non-confiscatory measures
alien enemy owner of property by process that are not essentially exemplified in sequestrations as a desirable and sufficient means of
confiscatory, even though the taking and retention may cause him utilizing such property."
severe loss and hardship. Recourse to such non-confiscatory reten-
And Oppenheim in his International Law, Vol. 2, 6th ed., by
616 Lauterpacht, says:
"But the desire to eliminate the financial and commercial influence

616 PHILIPPINE REPORTS ANNOTATED of the enemy, and other motives, presently led in most States to
Haw Pia vs. China Banking Corporation exceptional war measures against the businesses and property of
enemies, which, though not confiscation, inflicted great loss and
tions or deprivations has marked the conduct of belligerents since injury. Sometimes these measures stopped short of divesting the
the beginning of the World War in 1914. They may perhaps be enemy ownership of the property; but in other cases the businesses
appropriately referred to as sequestrations. The propriety of what or property were liquidated, and were represented at the close of
they have involved is, therefore, hardly discernible by reference to
617
objections directed against confiscatory action as such, and must be
tested by other means or standards.
"A belligerent may fairly endeavor to prevent enemy property of VOL. 80, APRIL 9, '1948 617
any kind within its territory (or elsewhere within its reach) from Haw Pia vs. China Banking Corporation
being so employed as to afford direct military aid to its foe.
Measures of prevention may, in a particular case, assume a hostilities by nothing else than the proceeds of their realization,
confiscatory aspect. In such a situation the question may arise often enough out of all proportion to their value. In the Trading
whether those measures are, nevertheless, excusable. It is believed with the Enemy Act, 1939, provisions was made for the
that they may be, and that they are not invariably unlawful despite appointment of custodians of enemy property in order to prevent

the payment of money to enemies and to preserve enemy property Haw Pia vs. China Banking Corporation
in contemplation of arrangements to be made at the conclusion of
peace. of the occupant could not be anything but a permanent
"The readjustment of rights of private property on land was measure involving final effects beyond the duration of the
provided for by the Treaties of Peace. The general principles occupation. There is no military need for it because the
underlying their complicated arrangements were that the validity same practical results can be achieved by temporary
of all completed war measures was reciprocally confirmed; but that sequestration," (par. 385, p. 107).
while uncompleted liquidations on the territories of the Central Martin Domke in his Trading with the Enemy in World
Powers were to be discontinued, and the subjects of the victorious War II, pp. 4 and 5, speaking of Warfare on Economic and
Powers were to receive compensation for the loss or damage military fronts, says that "Freezing Control is but one
inflicted on their property by the emergency war measures, the phase of the present war effort; it is but one weapon on the
property of subjects of the vanquished Powers on the territories of total war which is now being waged on both economic and
the Allied and Associated Powers might be retained and liquidated, military fronts. Coupled with Freezing Control as a part of
and the owner was to look for compensation to his own State. The this nation's program of economic warfare are to be found
proceeds of the realization of such property were not to be handed export control, the promulgation of a Black List,
over to him, or to his State, but were to be credited to his State as a censorship, seizure of enemy-owned property, and financial
payment on account of the sums payable by it under the treaties." and lend-lease aid to allied and friendly nations. As to
Japan, no official information is available as yet on steps
In paragraph 143 (p. 313) of the same work, Oppenheim taken by the Japanese Government. As a Commentary of
states that "Private personal property which does not April 11, 1942, points out, the Japanese Trading with the
consist of war materials or means of transport serviceable Enemy legislation enacted during the last war against
for military operations may not be as a rule seized". It is Germany might throw some light on the views adopted by
obvious that the word "seized" used therein signifies Japan in this matter."
"confiscated" in view of the above quoted paragraphs, and The sequestration or liquidation of enemy banks in
therefore when Oppenheim says, in the footnote to said occupied territories is authorized expressly by the United
passage, "Nor may the occupant liquidate the business of States Army and Navy Manual of Military Government
enemy subject in occupied territories," he means and Civil Affairs F. M. 2710 OPNAV 50-E-3, which,
"confiscate" by the word "liquidate". mandatory and controlling upon the theatre commanders of
Ernest K. Feildchenfeld in his "The International the U. S. f orces in said territories, provides in its
Economic Law of Belligerent Occupation (1942)" supports paragraph 12 the following:
the foregoing conclusion of Hyde, when he says that
"According to Article 46 of the Hague Regulations, private "Functions of Civil Affairs Officers.·In the occupation of such
property must be respected and cannot be confiscated. This territories for a considerable period of time, the civil affairs officers
rule affords protection against the loss of property, through will in most cases be concerned with the following and other
outright confiscation, but not against losses under lawful activities:
requisition, contribution, seizure, fines, taxes, and "1. MONEY AND BANKING.·Closing, if necessary and
expropriation" (Par. 208, p. 51). And later on he adds: "A guarding of banks, bank funds, safe deposit boxes, securities and
complete nationalization of a corporation for the benefit records; providing interim banking and credit needs; liquidation;
reorganization, and reopening of banks at appropriate times;
618
regulation and supervision of credit cooperatives and other financial
agencies and organizations; execution of policies on currency fixed
618 PHILIPPINE REPORTS ANNOTATED by higher authority, such as the designation of types of currency to
be used and rates

619 The Combined Directive of April 28, 1944, for Military

Government in Germany Prior to Defeat or Surrender,
VOL. 80, APRIL 9, 1948 619 620

of exchange supervision of the issue and use of all types of money
and credit; declaration of debt moratoria; prevention of financial Haw Pia vs. China Banking Corporation
transactions with enemy occupied territory."
provided that the Allied Forces "Upon entering the area of
The civil affairs officers are concerned, that is, entrusted Germany will take the following steps and put into effect
with the performance of the functions enumerated above, only such further financial measures as they deem to be
when so directed by the chief commander of the occupant necessary from a strictly military standpoint. (b) "Banks
military forces. should be placed under such control as deemed necessary
Not only the United States Army and Navy Manual of by. them in order that adequate facilities or military needs
Military Government and Civil Affairs but similar manuals may be provided and to insure that instructions and
of other countries authorize the liquidation or impounding regulations issued by military authorities will be fully
of the assets of enemy banks or the freezing, blocking and complied with." (c) "Pending determination of future
impounding of enemy properties in the occupied hostile disposition, all gold, foreign currencies, foreign securities,
territories without violating article 46 or other articles of accounts in financial institutions, credits, valuable papers,
the Hague Regulations. They do not amount to an outright and all similar assets held by or on behalf of the following,
confiscation of private property, and were put into effect by will be impounded or blocked and will be used or otherwise
the Allied Army in the occupied hostile territories in dealt with only as permitted under licenses or other
Europe during World War II. instructions which you may issue: (1) German national
The Combined Chiefs of Staff, in their Directive of May state, provincial and local governments and agencies and
31, 1943, on Military Government in Sicily, Italy, addressed instrumentalities thereof." (4) "Nazi party organizations
to the Supreme Allied Commander, Mediterranean including the party formations, affiliates and supervised
Theater, ordered:·"(h) An Allied Military Financial associations, and the officials, leading members and
Agency under the control of the Military Government shall supporters thereof; and (5) Persons under detention or
be established with such sub-agencies as considered other types of custody by Allied Military authorities and
necessary," " (i) Military authorities on occupying an area other persons whose activities are hostile to the interests of
shall immediately take the following steps: '(1) All financial military government" (Holborn, supra, p. 141).
institutions and banks shall be closed and put under the In the Allied Directive of June 27, 1945, to the
custody of the military forces'," (2) a general moratorium Commander in Chief of the United States forces of
shall be declared. (;") * * * all papers of value, foreign occupation regarding the military government of Austria,
securities, gold and foreign currencies shall be impounded the Commanding General of the United States forces of
with receipts granted to recognized owners. (k) "The Allied occupation in Austria, serving as United States member of
Military Financial Agency or any appointed agency by the the Allied Council of the Allied Commission for Austria,
MG will take into immediate custody all foreign securities was authorized, subject to agreed policies of the Allied
and currencies, holding of gold, national funds and Council to close banks, insurance companies, and other
holdings of Fascist organizations for deposit." (Appendix on financial institutions for a period long enough to introduce
American Military Government, its Organization and satisfactory control to ascertain their cash position and to
Policies, by Hajo Holborn, 1947, pp. 116, 117.) issue instructions for the determination of accounts and

assets to be blocked under paragraph 55 which authorized the United States Treasury, shall be settled as Congress
him to impound or block all gold, silver, currencies, shall direct."
securities ac- The purpose of such sequestration is well expounded in
the Annual Report of the Office of the Alien Custodian for a
621
period from March 11, 1943, to June 30, 1943. "In the
absence of effective measures of control, enemy-owned
VOL, 80, APRIL 9, 1948 621
622
counts in financial institutions, credits, valuable papers,
and all other assets f alling within the following categories: Haw Pia vs. China Banking Corporation
a. Property owned or controlled, directly or indirectly, in
whole or in part, by any of the following: (1) the property can be used to further the interest of the enemy
governments, nationals or residents of the German Reich, and to impede our own war effort. All enemy-controlled
Italy, Bulgaria, Rumania, Hungary, Finland and Japan, assets can be used to finance propaganda, espionage, and
including those of territories occupied by them; (3) the Nazi sabotage in this country or in countries friendly to our
Party, its formations, affiliated associations and supervised cause. They can be used to acquire stocks of strategic
organizations, its officials, leading members and materials and supplies * * * use to the enemy, they will be
supporters; (4) all organizations, clubs or other associations diverted from our own war effort.
prohibited or dissolved by military government; (5) The national safety requires the prohibition of all
absentee owners, including United Nations and neutral unlicensed communication, direct or indirect, with enemy
governments; (7) persons subject to arrest under the and enemy-occupied territories. To the extent that this
provisions of paragraph 7, and all other persons specified prohibition is effective, the residents of such territory are
by military government by inclusion in lists or otherwise, prevented from exercising the rights and responsibilities of
(Holborn, supra, p. 192). ownership over property located in the United States.
On the other hand, the provisions of the Trading with Meanwhile, decisions affecting the utilization of such
the Enemy Acts enacted by the United States and almost property must be made and carried out. Houses must be
all the principal nations since the first World War, maintained and rents collected; payments of principal and
including England, Germany, France, and other European interest on mortgages must be made for the account of
countries, as well as Japan, confirms that the assets of foreign debtors and foreign creditors; stranded stocks of
enemy corporations, specially banks incorporated under the material and equipment must be sold; patents must be
laws of the country at war with the occupant and doing licensed, business enterprises must be operated or
business in the occupied territory, may be legally liquidated, and foreign interest must be represented in
sequestrated, and the business thereof wound up or court actions. The number of decisions to be made in
liquidated. Such sequestration or seizure of properties is connection with property is in fact multiplied by a state of
not an act for the confiscation of enemy property, but for war, which requires that productive resources be shifted
the conservation of it, subject to further disposition by from one use to another so as to conform with the
treaty between the belligerents at the end of the war. requirements of a war economy."
Section 12 of the Trading with the Enemy Act of the United The defendant-appellee, China Banking Corporation,
States provides that "after the end of the war any claim of comes within the meaning of the word "enemy" as used in
enemy or ally of an enemy to any money or other property the Trading with the Enemy Acts of civilized countries,
received and held by the Alien Custodian or deposited in because not only it was controlled by Japan's enemies, but

it was, besides, incorporated under the laws of a country state." The Italian Act of 1938, section 5, regards
with which Japan was at war. corporations as enemies if they are enemy of nationality
Section 2 (1) of the Trading with the Enemy Act of Great under the law of the enemy state. So too the Japanese Act,
Britain provides that the expression "enemy" means: "any Chapter 1, No. 25, deems enemies "all corporations
body of persons (whether corporate or incorporate) carrying belonging to enemy countries." (See Martin Domke,
on business in any place, if and so long as the body is Trading with the Enemy Act in World War II, pp. 120-122.)
controlled by a person who, under this section, is an Section 3-A of the Trading with the Enemy Act of the
United Kingdom of September 5, 1939, as amended up
623
624
VOL. 80, APRIL 9, 1948 623

Haw Pia vs. China Banking Corporation 624 PHILIPPINE REPORTS ANNOTATED
Haw Pia vs. China, Banking Corporation
enemy." The control test has also been expressly adopted in
the French Trading with the Enemy Act. The Italian Act to April 1, 1943, provides that "Where any business is
regards as enemies "legal persons when enemy subject being carried in the United Kingdom by, on behalf of, or
have any prevalent interests whatever in them." The under the direction of, persons all or any of whom are
Decree of the Dutch Government-in-exile of June 7, 1940, enemies or enemy subjects or appear to the Board of Trade
also adopted the control test by including in the term to be associated with enemies, the Board of Trade may, if
enemy subjects "legal persons in which interest of an they think it expedient so to do, make * * *;" (b) an order
enemy state or enemy subjects are predominantly (hereinafter in this section referred to as a winding up
involved." (Domke Trading with the Enemy Act, pp. orders) requiring the business to be wound up;" and section
127130.) 14 (c) of the same Act (that obviously makes it applicable to
In the United States, the Trading with the Enemy Act enemy territories occupied by the United Kingdoms armed
has not adopted the control theory. But section 2-a of the forces) provides that "His Majesty may by Order in council
said Act says that the word enemy shall be deemed to mean direct that the provisions of this Act other than this section
any "corporation incorporated within such territory of any shall extend, with such exceptions, adaptations and
nation with which the United States is at war." And the modifications, if any, as may be prescribed by or under the
same definition is given to the word "enemy" by the order * * * (to the extent of His Majesty's jurisdiction
Trading with the Enemy Act of the above named countries. therein) to any other country or territory being a foreign
The British Act in section 2 (1) defines as enemy "any body country or territory, in which for the -time being His
of persons constituted or incorporated in or under the laws Majesty has jurisdiction." (The Trading with the Enemy Act
of a state at war with his Majesty," it being immaterial that in World War II, p. 481, by Martin Domke.)
they are under the control of allied or neutral stockholders. Section 5 (b) of the Trading with the Enemy Act of the
Similarly the French Act regards as enemies, corporations United States provides that "during the time of war or
incorporated in conformity with the laws of an enemy state. during any period in which national emergencies declared
The decree of the Dutch Government-in-exile on June 7, by the President, the President may under any agency that
1940, considers as enemies legal persons "organized or he may designate or otherwise and under such rule and
existing according to or governed by the law of an enemy regulation as he may prescribe," and "any property or
state." The German Act of January 15, 1940, I section 3 (1) interest of any foreign country or national thereof shall
3, deems enemies all corporations, "the original legal vest, when, as, and upon.the terms, directed by the
personality of which is based on the laws of an enemy President, in such agency or person as may be designated

from time to time by the President, and upon such terms the hostile territory occupied by her armed forces. In the
and conditions as the President may prescribe, such first case, Congress is untramelled and free to authorize
interest or property shall be held, used, administered, the seizure, use, or appropriation of such properties
liquidated, etc." and section 6 (e) of the same Act provides without any compensation to the owners, for although
that "any payment, * * * of money or property made to the section 2 of the Trading with the Enemy Act provides that
alien property custodian hereunder shall be a full "at the end of the war any claim of any enemy or of an ally
acquittance and discharge for all purposes of the obligation of enemy to any money or other property received and held
of the person making the same to the extent of same. * * * by the alien property custodian or deposited in the United
and shall, in case of payment to the alien property cus- States Treasury shall be settled by Congress," the owners
of the properties seized within the national domain of the
625
626
VOL. 80, APRIL 9, 1948 625

todian of any debt or obligation owed to an enemy or ally of
enemy, deliver up any notes, bonds, or other evidences of United States are not entitled to demand its release or
indebtedness or obligation, * * * with like effect as if he or compensation for its seizure, but what would ultimately
they, respectively, were duly appointed by the enemy or ally come back to them, might be secured, not as a matter of
of enemy, creditor, or obligee." right, but as a matter either of grace to the vanquished or
It is evident that the Trading with the Enemy Act of the exacted by the victor, for the case is to be governed by the
United States, like that of the United Kingdom or Great domestic laws of the United States, and not by the Hague
Britain above quoted, and those of other countries, may be Regulations or International law (U. S. vs. Chemical
applied and enforced in a hostile territory occupied by the Foundation, Inc., 272 U. S. 1; United States vs. S. S. White
United States armed forces, because section 2 of said Act Dental Manufacturing Company, 274 U. S., 402). While in
provides "That the words 'United States', as used herein, the latter case, when properties are sequestrated in a
shall be deemed to mean all land and water, continental or hostile occupied territory by the armed f orces of the United
insular, in any way within the jurisdiction of the United States, Congress can not legally refuse to credit the
States or occupied by the military or naval forces thereof." compensation for them to the States of the owners as
After the liberation of the Philippines during World War II, payment on account of the sums payable by said States
properties belonging to Japanese Nationals located in this under treaties, and the owners have to look f or
country were taken possession of by the Alien Property compensation to their States, otherwise, they would violate
Custodian appointed by the President of the United States article 46 of the Hague Regulations or their pledge of good
under the Trading with the Enemy Act, because, although faith implied in the act of sequestrating or taking control of
the Philippines was not a territory or within the such properties.
jurisdiction or national domain of the United States, it was It is to be presumed that Japan, in sequestrating and
then occupied by the military and naval forces thereof. liquidating the China Banking Corporation, must have
Of course it is obvious that the obligations assumed by acted in accordance, either with her own Manual of the
the United States, in applying the Trading with the Enemy Army and Navy and Civil Affairs, or with her Trading with
Act of the United States to properties within her national the Enemy Act, and even if not, it being permitted to the
domain, is different and distinct from those arising from Allied Nations, specially the United States and England, to
the application thereof to enemy properties located within sequestrate, impound, and block enemy properties found

within their own domain or in enemy territories occupied (1) Out of the sum of about P34,000,000 collected from
during the war by their armed f orces, and it being not the debtors by the liquidator Bank of Taiwan, the
contrary to the Hague Regulations or international law, latter paid out to the depositors or creditors of the
Japan had also the right to do the same in the Philippines same bank about P9,000,000; and it is common
by virtue of the international law principle that "what is sense that this last amount should not have been
permitted to one belligerent is also allowed to the other." disbursed or taken out of the said amount of about
Taking into consideration the acts of the Japanese P34,000,000 had it been the intention of the
Military Administration in treating the private properties Japanese Military Administration to confiscate this
of the so-called enemy banks, it appears evident that Japan amount collected by the Bank of Taiwan.
did not intend to confiscate or appropriate the assets of (2) The members of Chinese Associations were
said banks or the debts due them from their debtors, and permitted to withdraw from their deposits with the
thus China Banking Corporation a considerable amount
of money which was paid out of the sum collected
627
from the debtors of said bank, in order that they
may pay the contribution legally exacted from them
VOL. 80, APRIL 9, 1948 627 by the military occupant in
Haw Pia, vs. China Banking Corporation
628
violate article 46 or any other article of the Hague

Regulations. It is true that, as to private personal 628 PHILIPPINE REPORTS ANNOTATED
properties of the enemy, freezing, blocking or impounding Haw Pia vs. China Banking Corporation
thereof is sufficient for the purpose of preventing their
being used in aid of the enemy; but with regard to the
funds of commercial banks like the so-called enemy banks, accordance with article 51 of the Hague
it was impossible or impracticable to attain the purpose for Regulations. And this showed the intention of the
which the freezing, blocking and impounding are intended, belligerent occupant not to confiscate the bank's
without liquidating the said banks and collecting the loans assets and to act, at least in this respect, in
given by them to hundreds if not thousands of persons accordance with said Regulations; because
scattered over the Islands. Without doing so, their assets or otherwise the Japanese Military Administration
money loaned to so many persons can not properly be could have properly required the Chinese to pay the
impounded or blocked, in order to prevent their being used contribution out of their own funds, without
in aid to the enemy through the intervention of their very diminishing or reducing the amounts collected by
debtors, and successfully wage economic as well as military the Bank of Taiwan from the debtors of the China
war. Bank.
That the liquidation or winding up of the business of the (3) The collection of the aforementioned debts from the
China Banking Corporation and other enemy banks did not bank's debtors, as well as the payment of
constitute a confiscation or appropriation of their withdrawal by the depositors, were regularly
properties or of the debts due them from their debtors, but entered into the books of said Banks, so that after
a mere sequestration of their assets during the duration of liberation they could easily determine the
the war for the purposes already stated, is evidenced respective amounts and the persons who had made
conclusively by the following uncontroverted facts set forth the payments, which enabled all said banks to
in the briefs of both parties and amici curiÕ: reopen and continue their business; and the regular

keeping of said books would have been unnecessary believe that accounts of some of our occupied Branches had been
or useless, were it the intention of the military partly or wholly liquidated, and that the liquidation of such
occupant to close definitely the enemy banks and accounts would ultimately bring about shrinkage in both Assets and
appropriate all their resources. Liabilities in the Balance Sheet figures. The information now in our
(4) , There was absolutely no reason for confiscating possession and the various changes in the Balance Sheet figures to
the funds of the banks collected from their debtors, which I have referred above, confirm the correctness of this
because by sequestrating or impounding their statement, for during the enemy occupation the cash balances of our
assets or funds after the latter had been collected Branches were seized, their assets realised where possible, and
from their debtors, the principal purpose of repayment of varying amounts, but up to 100 per cent in one Branch
preventing the possible use of the funds of the at least, made to depositors. Even so, the business of the offices of
banks in aid of Japan's enemy was completely the Bank which remained under our own control throughout the
accomplished. Absolutely no other benefit could be war has steadily increased and has offset to a great extent
derived by Japan from confiscating or appropriating decreases brought about by the partial liquidation of Branches
the payments made in Japanese war military notes which were in Japanese control." (Italics ours.)
to the enemy banks by their debtors, because the
' It is obvious that the fact that Japanese Military
Japanese Government could have them at will
authorities failed to pay the enemy banks the balance of
without cost, except that of the ink, paper and labor
the money collected by the Bank of Taiwan from the
necessary for printing and issuing them.
debtors of said banks, did not and could not change the
(5) The annual report, 31st December, 1945, of the sequestration or impounding by them of the bank's assets
Chartered Bank of India, Australia & China (pp. during the war, into an outright confiscation or
11-12), which had a branch in Manila liquidated by appropriation thereof. Aside from the fact that it was
Japanese Military authorities as one of the enemy physically impossible for the Japanese Military authorities
banks, clearly shows to do so because they were forcibly driven out of the
Philippines or annihilated by the forces of liberation,
629
following the readjustment of rights of private property on
land seized by the enemy provided by the Treaty of
VOL. 80, APRIL 9, 1948 629 Versailles and other peace treaties entered into at the close
of the first World War, the general principles underlying
such arrangements are that the owners of properties
seized,
that the liquidation of said branch was a mere
sequestration, impounding or control of its assets, 630
and not a confiscation or appropriation thereof
during the occupation by the Japanese. It says that 630 PHILIPPINE REPORTS ANNOTATED
during the enemy occupation the cash balance of
our Branches were seized, their assets realized and Haw Pia vs. China Banking Corporation
repayment of varying amounts, but up to 100 per
cent in one Branch at least, made to depositors. Said sequestrated or impounded who are nationals of the
report reads, in its pertinent part, as follows: victorious belligerent are entitled to receive compensation
for the loss or damage inflicted on their property by the
"I informed you, when commenting upon the Balance sheet figures emergency war measures taken by the enemy, through
for the year ending 31st December, 1942, that we had reason to their respective States or Governments who may officially

intervene and demand the payment of the claim on behalf paid were Japanese war notes does not affect the validity of
of their nationals (VI Hackworth Digest of International the payments. The provision of article 1170 of our Civil
Law, pages 232, 233; 11 Oppenheim, sixth edition, page Code to the effect that "payment of debts of money must be
263). Naturally, as the Japanese war notes were issued as made in the specie stipulated and if it is not possible to
legal tender for payment of all kinds at par with the deliver such specie in silver or gold coins which is a legal
Philippine peso, by the Imperial Japanese Government, tender," is not applicable to the present case, because the
which in its proclamations of January 3, 1942, and contract between the parties was to pay Philippine pesos
February 1, 1942, "takes full responsibility for their usage and not some specifically defined species of money. The
having the correct amount to back them up" (See said Philippine peso and half-pesos including the Philippine
Proclamations and their official explanation, O. T. IMA Vol. Treasury Certificate was and is the legal tender in the
1, pp. 39, 40), Japan is bound to indemnify the aggrieved Philippines under section 612 of the Administrative Code,
banks for the loss or damage on their property, in terms of as amended by Act No. 4199. As well stated by the
Philippine pesos or U. S. dollars at the rate of one dollar for Supreme Court of the United States in Knox vs. Lee and
two pesos. Parker (Legal Tender Cases, 12 Wall., 457-681, 20 Law. ed.,
(2) The second question is, we may say, corollary of the 287). "The expectation of the creditor and the anticipation
first. It having been shown above that the Japanese of the debtor may have been that the contract would be
Military Forces had power to sequestrate and impound the discharged by the payment of coined metals, but neither
assets or funds of the China Banking Corporation, and for the expectation of one party to the contract, respecting its
that purpose to liquidate it by collecting the debts due to fruits, nor the anticipation of the other, constitutes its
said bank from its debtors, and paying its creditors, and obligation. There is a well-recognized distinction between
therefore to appoint the Bank of Taiwan as liquidator with the expectation of the parties to a contract and the duty
the consequent authority to make the collection, it follows imposed by it. Aspdin vs. Austin, 5 Ad. & Bl. (N. S.) 671;
evidently that the payments by the debtors to the Bank of Dunn vs. Sayles, Ibid. 685; Coffin vs. Landis, 46 Pa. 426.
Taiwan of their debts to the China Banking Corporation Were it not so, the expectation of results would be always
have extinguished their obligation to the latter. Said equivalent to a binding engagement that they should
payments were made to a person, the Bank of Taiwan, follow. But the obligation of contract to pay money is to pay
authorized to receive them in the name of the bank creditor that which the law shall recognize as money when the
under article 1162, of the Civil Code. Because it is evident payment is to be made. If there is anything settled by
the words "a person authorized to receive it," as used decision it is this, and we do not understand it to be
therein, means not only a person authorized by the same controverted." (Knox vs. Exchange Bank of Virginia, 12
creditor, but also a person authorized by law to do so, such Wall., 457; 20 U. S. Supreme Court Reports, 20 L. ed., 287,
as guardian, executor or administrator of estate of a 311.) In said case it was held that the Legal Tender Acts of
deceased, and assignee or liquidator of a partnership or Congress which made the treasury notes legal tender for
payment of debts contracted before and after their passage
631
were not inappro-
632
VOL. 80, APRIL 9, 1948 631
corporation, as well as any other who may be authorized to Haw Pia vs. China Banking Corporation
do so by law (Manresa, Civil Code, 4th ed. p. 254.)
The fact that the money with which the debts have been priate for carrying into execution the legitimate purpose of

the Government. And this Court, in Rogers vs. Smith Bell

(10 Phil., 319), held that "A debt of 12,000 pesos created in 172-173.) The Confederacy issued its own currency in
1876 can now (1908) be paid by 12,000 of the Philippine Confederate territory (Thorington vs. Smith, 8 Wall., 1) and
pesos authorized by the Act of Congress of March 2, 1903, also in northern areas occupied from time to time during
although at the time the loan was made which created the the war. (Spaight, op. cit. supra, note 19, 392.) The
debt, the creditor delivered to the debtor 12,000 pesos in Japanese issued special occupation currency in Korea and
gold coin." Manchuria during the Russo-Japanese War of 1905.
The power of the military governments established in (Takahashi, International Law Applied to the Russo-
occupied enemy territory to issue military currency in the Japanese War, 1908, 260-61; Spaight, op. cit. note 19, 397;
exercise of their governmental power has never been Ariga, La Guerre Rossu-Japanese, 1908, 450 et seq.) The
seriously questioned. Such power is based, not only on the British also issued currency notes redeemable in Sterling
occupant's general power to maintain law and order in London at a fixed rate of exchange, in their occupation of
recognized in article 43 of the Hague Regulations Archangel during and after the first World War. (White,
(Feilchenfeld says in his treatise on International Economic Currency of the Great War, 66; League of Nations,
Law of Belligerent Occupation, paragraph 6), but on Currency After the War, 100.)
military necessity as shown by the history of the use of During the World War II, the Germans had been using a
money or currency in wars. variety of occupation currencies as legal tenders on a large
As early as the year 1122, during the siege of Tyre, Doge scale, the currency initially used in most occupied areas
Micheli paid his troops in leather money which he being the Reichskroditkassa mark, a paper currency
promised to redeem when he returned to Venice (Del Mar, printed in German and denominated in German monetary
Money and Civilization, 26), and when Frederick II units, which circulated side by side with the local currency
besieged Milan he also used leather money to pay his at decreased rates of exchange. And the Allies have
troops, as well as in payment of wages (id. 33). When the introduced notes as legal currency in Sicily, Germany and
French forces occupied the Ruhr in 1923, they finished the Austria. The Combined Directive of the combined Chief of
printing of some Reichsbank notes in process and issued Staffs to the Supreme Allied Commander issued on June
them. (Nussbaum, Money in the Law, note 6, 158-59.) The 24, 1943, directed that the task forces of the U. S. will use,
British during the Boer War issued receipts for besides regular U. S. coins, yellow seal dollars, and the
requisitioned goods and made such receipts readily forces of Great Britain will use besides British coins,
negotiable, an arrangement very similar to the issuance of British Military Notes (BMA), to supplement the local lire
currency (Spaight, War Rights on Land, 396). During the currency then in use (Hajo Holborn, American Military
American Revolution, the Continental Congress issued Government, 1947, pp. 115, 116). The Combined Directive
currency even before the issuance of the Declaration of for Military Government in Germany, prior to defeat or
Independence, when the territory controlled by Congress surrender, of April 28, 1944, directed the United States,
was held in military occupation against the then legitimate British and other Allied forces to use Allied military mark
government. (Dewey, Financial History of the United and Reichsmark currency in circulation in Germany as
States, 37-38; Morrison and Commager, Growth of the legal tender and the Allied Military Marks will be
American Republic, 207; Nussbaum, op. cit. supra note 6, interchangeable with the Reichsmark currency at the rate
of Allied Mark for Reichsmark; and that in the event
633
634
VOL. 80, APRIL 9, 1948 633


Haw Pia vs. China Banking Corporation 635
adequate supplies of them were not available, the United VOL. 80, APRIL 9, 1948 635
States forces will use Yellow seal dollars and the British
forces will use British Military Authority (BMN) notes. Haw Pia vs. China Banking Corporation
(Holborn, op. cit. supra, p. 140.) And the American
Directive on the Military Government of Austria of June and for that reason authorities are afraid of exposing it to
27, 1945, ordered that the United States forces and other additional strain, and for that reason an occupant may not
Allied forces within Austria will use only Allied Military replace the local currency by his own currency for all
Schillings for pay of troops and other military currency for all purposes, and enforce its use not only for
requirements, declaring it legal tender in Austria his own payment but also for payments among inhabitants
interchangeably with Reichsmarks at a rate of one Allied (paragraph 285). (3) Where the regional currency has
military schilling for one Reichsmarks. (Holborn, op. cit. become inadequate and it is deemed inadvisable by the
supra, p. 192.) occupant to expose his own currency to further strain, new
In the above cited case of Thorington vs. Smith, the types of money may be created by the occupant. Such new
Supreme Court of the United States said: currency may have a new name and may be issued by
institution created for that purpose (paragraph 296). This
"* * * While the war lasted, however, they had a certain contingent last method was the one adopted by Japan in this country,
value, and were used as money in nearly all business transactions because the coverage of the Philippine Treasury Certificate
of many millions of people. They must be regarded, therefore, as a of the territory occupied had become inadequate, for most if
currency, imposed on the community by irresistible force. not all the said coverage have been taken to the United
"It seems to follow as a necessary consequence from this actual States and many millions of silver pesos were buried or
supremacy of the insurgent government, as a belligerent, within the .thrown into the sea near Corregidor, and Japan did not
territory where it circulated, and from the necessity of civil want to use her national currency, and expose it to
obedience on the part of all who remained in it, that this currency additional strains.
must be considered in courts of law in the same light as if it has But be that as it may, whatever might have been the
been issued by a foreign government, temporarily occupying a part intrinsic or extrinsic worth of the Japanese war-notes
of the territory of the United States." which the Bank of Taiwan has received as full satisfaction
of the obligations of the appellee's debtors to it, is of no
According to Feilchenfeld in his book "The International
consequence in the present case. As we have already
Economic Law of Belligerent Occupation," the occupant in
stated, the Japanese war-notes were issued as legal tender
exercising his powers in regard to money and currency,
at par with the Philippine peso, and guaranteed by
may adopt one of the following methods according to
Japanese Government "which takes full responsibility for
circumstances: (1) When the coverage of the currency of the
their usage having the correct amount to back them up
territory occupied has become inadequate as found in
(Proclamation of January 3, 1942). Now that the outcome of
several Balkan countries during the War of 1914-18, and
the war has turned against Japan, the enemy banks have
"the local currency continues to be used, an occupant may
the right to demand from Japan, through their States or
reorganize the national currency by appropriate methods,
Government, payments or compensation in Philippine peso
such as the creation of new types and supplies of coverage"
or U. S dollars as the case may be, f or the loss or damage
(paragraph 272). (2) The occupant may, and not
inflicted on the property by the emergency war measure
infrequently, use his own currency, in the occupied region.
taken by the enemy. If Japan had won the war or were the
But this method may be found inconvenient if the coverage
victor, the property or money of said banks sequestrated or
for their national currency had already become inadequate,

impounded by her might be retained by Japan and credited defendant, as guaranty for the amounts of her
to the respective State of which the owners of said indebtedness to the latter, her property described in
transfer certificate of title No. 47634 of the Register of
636
Deeds of Manila. One of the conditions of the mortgage was
that, in case of execution, plaintiff will pay an additional
636 PHILIPPINE REPORTS ANNOTATED amount of
banks were nationals, as a payment on account of the sums

VOL. 80, APRIL 9, 1948 637
payable by them as indemnity under the treaties, and the
said owners were to look for compensation in Philippine Haw Pia vs. China Banking Corporation
pesos or U. S. dollars to their respective States. (Treaty of
Versailles and other peace treaties entered at the close of 10 per cent of the debt which in no case shall be less than
the first world war; VI Hackworth Digest of International P1,500.
Law, p. 232.) And if they cannot get any or sufficient On January 2, 1942, the Bank of Taiwan was appointed
compensation either from the enemy or from their States, by the Japanese military authorities of occupation as
because of their insolvency or impossibility to pay, they liquidator of the China Bank, and f rom October 7, 1942, to
have naturally to suffer, as everybody else, the losses August 29, 1944, plaintiff made payments to the Bank of
incident to all wars. Taiwan amounting to P6,055.21 to liquidate her obligation
In view of all the foregoing, the judgment appealed from with the China Bank, payments being made in Japanese
is reversed, and the defendant-appellee is sentenced to military notes.
execute the deed of cancellation of mortgage of the property In the complaint filed by plaintiff on September 4, 1945,
described in the complaint, and to deliver to the plaintiff- she prayed that the China Bank be required to return to
appellant the Transfer Certificate of Title No. 47634 of the her, her certificate of title No. 47634, with the mortgage
Register of Deeds in Manila with the annotation of cancelled, and to pay P1,000 as attorneys fees, plus costs.
mortgage therein already cancelled, without On October 15, 1945, the China Bank, not recognizing
pronouncement as to costs. So ordered. the payments made by the plaintiff to the Bank of Taiwan,
filed a cross complaint for the collection from the plaintiff
Moran, C. J., Parás, Pablo, and Bengzon, JJ., concur. of the amount of P5,103.35, with interest, plus P1,500 for
attorney's fees and costs.
PERFECTO, J., concurring: On March 12, 1946, the lower court rendered a decision
Before September 14, 1939, Haw Pia secured an overdraft declaring null and void the payments made by plaintiff to
account from the China Banking Corporation up to the sum the Bank of Taiwan to satisf y her obligation to the China
of P8,000 with. the obligation to pay, on the bank's demand, Bank, ordering her to pay to the China Bank the sum of
the amounts withdrawn with interest at the rate of 9 per P5,103.35 with interests and that, upon her failure to pay
cent per annum, payable monthly, at the end of each said amount within ninety days after Executive Order No.
month, the interests to be compounded in case of failure. 32, series of 1945, on moratorium, shall have been revoked,
From September 14, 1939, to December 26, 1941, the mortgaged property be sold at public auction and the
plaintiff withdrew several amounts and on a later date the product applied to the payment of the judgment.
balance amounted to P5,103.35. The above are the facts in this case as stated in
On September 14, 1941, plaintiff mortgaged to appellee's brief.
Appellant states that the mortgaged property consists of

a lot and house located at No. 1134 Padre Algue street, mortgage executed by appellant in favor of appellee is
Manila, and that the China Bank, being an enemy bank, declared cancelled, and appellee ordered to return to
was placed under liquidation of the Bank of Taiwan by appellant transfer certificate of title No. 47634, without
virtue of Administrative Ordinance No. 11 issued by the costs.
Director General of the Japanese Military Administration
dated August 1, 1942, and prays for reversal of the BRIONES, M., conforme:
appealed decision and that the China Bank be ordered to
execute a deed of cancellation of the mortgage and to de- El presente caso es una de las derivaciones jurídicas más
importantes de la ocupación japonesa. No ha sido fácil el
638 hallarie una solución adecuada y justa, siquiera sea dentro
de lo relativo que supone la creación de un derecho, de una
justicia, en un medio tan esencialmente caótico y confuso
como es toda guerra con su balumba com-
639
liver to her transfer certificate of title No. 47634, with

costs. VOL. 80, APRIL 9, 1948 639
For the purposes of the legal questions raised in this
appeal, there is no substantial disagreement as to the
pertinent facts. Disentangled from the morass of
voluminous memoranda filed by the parties' counsel and pleja de consecuencias. Hay mucho de barbarie en toda
amici curiae, giving to the record imposing bulkiness, all guerra, máxime en una de agresión como la emprendida
the controversy in this case can be reduced and simplified por los japoneses en 1941; así que no es extraño que haya
into the following questions: The amounts, paid by Haw Pia sido tan dif ícil para la humanidad el extraer de la barbarie
to the Bank of Taiwan having been lost, unless and until un cuerpo de derecho, un sistema de justicia. El que esto
they are recovered from the Japanese government, who exista ahora, permitiendo relativamente a los tribunales
should suffer the loss? dirimir y resolver las disputas resultantes de las guerras,
Justice, as we see it, allows only the following answer: no sólo habla alto de la perf ectibilidad humana, de la
the creditor. The appropriation made by the Japanese of capacidad básica del género humano para el progreso en el
the money paid by Haw Pia, be it designated as a orden moral y jurídico, sino que constituye un feliz augurio,
confiscation or plain highway robbery, was unquestionably por encima de todos los pesimismos, de la victoria final de
aimed, not at the money as owned by Haw Pia, but as las f uerzas del bien sobre las tenebrosas potestades del
property of the China Bank. The Japanese appropriated mal.
appellee's credit, the money owed by Haw Pia to the China No hay controversia acerca de ciertos postulados a saber:
Bank, but not the property of Haw Pia. (a) Que las reglas de derecho internacional
Haw Pia would not have been molested if the Japanese complementan nuestro derecho civil para la
had not taken possession of the credit held by the China solución de ciertos conflictos y litigios. Esto rige
Bank. particularmente en la materia que se refiere al pago
No question has been raised as to the value of the money de las obligaciones.
paid. The presumption is that it covered completely the
(b) Que la piedra de toque de la validez y eficacia,
credit.
For all the foregoing, we vote for the reversal of the después de la guerra, de los actos jurídicos
appealed decision and as prayed for by appellant, the realizados durante la ocupación militar por un

beligerante de un territorio enemigo, es la legalidad with certain modifications and relaxations of the rule. See 15 R.C.L.
de tales actos bajo las reglas conocidas de derecho 187. (Law Dictionary with Pronunciations by Ballentine, p. 261.)
internal y los usos y prácticas generalmente Confiscate. To appropriate to the use of the state.
sancionados en tiempo de guerra. œSon legales tales Especially used of the goods and property of alien enemies found
actos? Entonces surten efecto aun después de la in a state in time of war. 1 Kent 52 et. seq. Bona confiscata and
guerra. œSon ilegales? Entonces son inválidos e foriscata are said to be the same (1 Bla. Com. 299), and the result to
ineficaces: los derechos y obligaciones de las partes the individual is the same whether the property be forfeited or
contratantes se restauran en su condición original confiscated; but, as distinguished, an individual forfeits, a state
preguerra, como si ningún acto se hubiese confiscates, goods or other property. Use also as an adjective·
ejecutado. forfeited. 1 Bla. Com. 299. (Bouvier's Law Dictionary, Vol. 1-A to E,
(c) Que el ocupante militar de un territorio enemigo no p. 595.)
puede confiscar bienes de propiedad particular, a "Confiscation" may result from taking use of property without
tenor de lo dispuesto en la Sec. III de las compensation, as well as from taking title. U.S.C.A. Const. Amend.
Regulaciones de La Haya. Así que es importante 5. Chicago, R. I. & P. Ry. Co. vs. U. S. (11) 52 S. Ct. 87, 92; 284 U. S.
definir el significado y alcance de la palabra 80, 76 L. ed. 177.
"confiscación", tal como ella se emplea tanto en el The verb "confiscate" is derived from the latin "con," with, and
derecho doméstico como en el internacional. Desde "fiscus," a basket or hamper, in which the Emperor's treasure was
luego la voz tiene la misma acepción en ambos formerly kept. The meaning of the word "confiscate" is to transfer
derechos. Según el diccionario de la Real Academia property from private to public use, or to forfeit property to the
de la Lengua Española confiscar es "privar a uno de prince or state. Ware vs. Hylton, 3 U. S. (3 Dallas), 199, 234; 1 L.
sus bienes ed., 568, 584.
Even if the war power includes right to confiscate debt due to an
640 enemy national, "confiscation" is not consummated by mere
declaration so as to automatically vest debt in government, but
actual payment must be exacted. Frankel & Co. vs. L'Urbaine Fire
640 PHILIPPINE REPORTS ANNOTATED Ins. Co. of Paris, France, 167 N. E., 430, 432; 251 N. Y., 243. (Words
Haw Pia vs. China Banking Corporation & Phrases, 8th ed., p. 575.)
(d) Que si al ocupante militar de un territorio enemigo no le

para aplicarlos al fisco". Escriche, en su Diccionario
está permitido confiscar bienes de propiedad parti-
de Legislación y Jurisprudencia, define el vocablo
diciendo que es "la adjudicación que se hace al fisco 641
de los bienes de algún reo".
VOL. 80, APRIL 9, 1948 641
Confiscate. To adjudge forfeited; to appropriate property. The word
is derived from the Latin "con" meaning with. and "fiscus", a basket Haw Pia vs. China Banking Corporation
or hamper in which the Roman emperor's treasure was kept. Hence,
the word means to transfer property from private use to public use; cular, le está permitido, sin embargo, secuestrar o embargar
or to forfeit property to the prince or state. See Ware vs. Hylton, 1 para determinados fines, entre ellos el enervar y debilitar
U. S. (3 Dallas), 199, 234; 1 L. ed. (U. S.), 568, 583. la capacidad para guerrear del país ocupado, o el evitar que
Confiscation. The seizure and appropriation of property los bienes objeto de secuestro o embargo puedan ser
belonging to an enemy. The law of nations prescribes that all utilizados en daño y perjuicio del ocupante militar. (Hyde,
property belonging to the enemy shall be liable to confiscation, but International Law, Vol. 3, 6th ed., p. 1727; Oppenheim,

International Law, Vol. 2, 6th ed., por Lauterpacht.) contrario, consta sin discusión que de los 34 millones que
(e) Que cuando la ocupación militar del territorio produjo la Iiquidación, unos 9 millones se pagaron a los
enemigo dura algún tiempo, el ocupante puede, por medio depositantes de dichos bancos que retiraron total o
de sus oficiales y agentes encargados de administrar los parcialmente sus depósitos, y a otros acreedores, figurando,
asuntos civiles, reorganizar los bancos, e inclusive por supuesto, entre tales depositantes y acreedores algunos
liquidarlos. Esto está categóricamente preceptuado en el extranjeros internados en los campos de concentración Este
Manual de Gobierno Militar y Asuntos Civiles del Ejército solo hecho basta y sobra para rechazar la idea o concepto de
y Marina de los Estados Unidos (United States Army and la confiscación. Es que para sus gastos militares y de todo
Navy Manual of Military Government and Civil Affairs F. género los japoneses no tenían necesidad de confiscar los
M. 2710 OPNAV, 50-E-3). Resulta evidente que en tal caso créditos de los bancos extranjeros: tenían para ello el
la liquidación no tiene el significado y alcance de una llamado fiat money en cantidades ilimitadas. Como se dice
confiscación, sino que es sólo una de las formas del bien en la ponencia, los japoneses disponían de imprenta,
secuestro o embargo, permitido por el derecho papel y tinta para producir papel moneda ad líbitum . . .
internacional, según ya queda indicado. Se admite que el banco demandado y otros bancos
Resulta evidente, de lo expuesto, que mientras la extranjeros puestos en su caso han tomado provecho de las
confiscación de bienes de propiedad particular está mencionadas retiradas de depósito pagadas por el banco
condenada y prohibida por las Regulaciones de La Haya y liquidador enriqueciéndose en la extension y cuantía de
es contraria a los usos y prácticas de una guerra civilizada, tales retiradas. Esta admisión implica necesariamente otra
no pudiendo, por tanto, surtir efectos válidos y eficaces admisión más importante, a saber: que el dinero utilizado
después de la guerra contra la voluntad de las partes para satisfacer dichas retiradas de depósito procedía de los
afectadas, no así el simple secuestro o embargo, el cual, créditos liquidados; y que naturalmente tales dinero y
como ya hemos visto, está autorizado por el derecho créditos no habían sido confiscados sino secuestrados
internacional para ciertos fines, entre ellos los indicados en solamente. Ahora bien; œcabe dividir y encasillar la
el apartado "e" arriba expuesto. La cuestión ahora en orden liquidación, declarando como confiscación una parte? y
es la siguiente: œcómo se debe enjuiciar y conceptuar la
como secuestro, otra. Indudablemente que no, pues ello
liquidación de los bancos extranjeros en Filipinas por el
sería un absurdo; la liquidación no podía ser mitad
Banco de Taiwan, que actuó como liquidador durante toda
confiscación, mitad secuestro. Habiendo el banco
la ocupación militar japonesa en nombre y representación
demandado y sus congéneres aceptado implícitamente la
del ejército del Mikado? œFué confiscación, o fué mero
teoría del secuestro al beneficiarse con las retiradas de
secuestro, simple embargo? Los hechos convenidos y
depósito que se han acreditado a su favor, mal puede
establecidos en autos conducen a una inevitable conclusion:
permitírseles repudiar dicha teoría cuando no les conviene
que no se trata aquí de una confiscación, sino de un
gritando confiscación! con relación a los otros créditos
secuestro. No sólo no hay
liquidados. Usando una frase vulgar, el que está a las
642 duras, también debe estar
643
Haw Pia vs. China, Banking Corporation VOL. 80, APRIL 9, 1948 643
en autos ninguna prueba de que el ejército ocupante o el
banco liquidador se aproprió de los créditos cobrados para
a las maduras, y viceversa. Esto debe regir tanto ética como
usarlos en su beneficio o aplicarlos al fisco? sino que, por el

jurídicamente. Haw Pia, vs. China Banking Corporation

No hay por que discutir si los japoneses hicieron bien o
mal al secuestrar el activo y los créditos de los bancos da esto la clave de que el suspicaz invasor recurriese a la
enemigos liquidándolos en la forma en que los liquidaron. liquidación para compeler el pago de las deudas bajo la
No se trata de eso; es decir, no se trata de nuestros puntos presión de la coacción o amenaza, o estimularlo, si se
de vista, ni de nuestras preferencias. Desde luego que quiere, mediante el impulso natural del instinto de
nuestro sentir es que todo lo que hicieron aquí fué malo, conservación? Repito: no se trata aquí ni mucho menos de
muy malo·desde el comienzo hasta el fin. Básicamente, f justificar el secuestro; se trata simplemente de explicarlo
undamentalmente la guerra que nos hicieron f ué una inf para deducir las consecuencias jurídicas de imperativa
amia; la invasion de nuestro suelo fué pura barbarie. Pero obligatoriedad bajo las reglas del derecho internacional.
de lo que se trata es si de acuerdo con el derecho Se ha puesto énfasis en los daños y perjuicios que
internacional vigente podían desarmar a los bancos sufrirían el ,banco demandado y otros bancos colocados en
enemigos secuestrando y liquidando su activo, a fin de igual predicamento si se convalidaran los pagos en
evitar que sus adversarios lo pudiesen utilizar en su daño y cuestión. La situación, sin embargo, no es absolutamente
lo activasen para fomentar el movimiento de resistencia irremediable. Habiendo el Japón causado esos daños con
contra la ocupación; y ya hemos visto que en la etapa a que los procedimientos de secuestro y liquidación que ejecutó
ha llegado el derecho internacional en su continuado para promover sus objetivos militares, el mismo es desde
avance eso está permitido. Tampoco hay por que discutir si luego responsable y está obligado a pagar la
la liquidación de los créditos era la forma adecuada de correspondiente indemnización. Por tanto, el tiempo
secuestro o embargo, pues la opción era suya·de los oportuno para discutir esta cuestión será cuando se negocie
nipones·no nuestra. el tratado de paz con el Japón. Es de presumir que entonces
Ahora, más de tres años después de la guerra, en que los los gobiernos de los países afectados·es decir, los países de
hechos se pueden avalorar desde mejor perspectiva, no origen de esos bancos·formularán un programa de
resulta difícil explicar por que los japoneses recurrieron al reclamaciones en el que se incluirán los daños y perjuicios
arbitrio de la liquidación como forma de secuestro del de que se trata; y es de presumir también que habrá un
activo y créditos de los bancos enemigos. El nipón es acaso arreglo entre dichos bancos y sus respectivos gobiernos.
el hombre más suspicaz del mundo. Su ingénita suspicacia Esto es, por lo menos, lo que cabe esperar no sólo porque es
se acentuó en un 1,000 por 100 durante la ocupación de lo más razonable y justo bajo las circunstancias, sino
Filipinas porque con razón sospechaba de la hostilidad de también porque es lo más lógico y hacedero a la luz de los
una inmensísima mayoría de la población·como que creía precedentes, usos y prácticas internacionales.
ver a un guerrillero en casi cada varón hábil. œExtrañará, Es posible que estos bancos no consigan un reembolso
pues, que con tal prejuicio y suspicacia presintiese la completo de sus créditos liquidados por los japoneses. Pero
posibilidad de que los créditos por cobrar de los bancos cabe preguntar: œquién después de una guerra, sobre todo
enemigos, desperdigados por el país, se aprovechasen por si ha sido tan devastadora como la última, puede conseguir
America y sus aliados para animar el movimiento de una completa reparación de los daños sufridos en forma de
resistencia, subvencionando con el capital de los mismos los vidas destruídas, de salud f ísica y moral deshecha, de
servicios de información, el espionaje, el "sabotage," etc., propiedades aniquiladas o robadas, etc., etc., quién? EI que
etc? œNo ha perdido a su padre, a su madre, a un hijo, a un ser
querido en una palabra œpuede acaso recobrarlo? Aunque
644
645

VOL. 80, APRIL 9, 1948 645 646

recibiera una indemnización pecuniaria œllena esto Haw Pia, vs. China Banking Corporation
plenamente el vacio? œcura sobre todo el dolor moral? A los
bancos afectados les queda, por lo menos, el consuelo de
mente, lo pagado en el segundo. El principio tiene que
que sus pérdidas resultantes de la liquidación forzosa por
aceptarse íntegramente con todas sus consecuencias. O se
los japoneses han quedado casi cubiertas, bien con sus
tira de la manta para todos, o no se tira para nadie . . . El
ganancias obtenidas en otras areas no directamente
principio es indivisible.
afectadas por la guerra, bien con ganancias logradas por
Sobre la cuestión del legal tender, paréceme que nada se
ellos aquí mismo después de la liberación, según inf ormes
puede añadir a los luminosos razonamientos del Señor
y datos auténticos. Así es la guerra: todos tienen su parte
Magistrado ponente. Razones de dialéctica, experiencia e
de dolor y sacrificio en ella; y uno no va a quejarse si por
historia abonan en favor de la tesis de que el ocupante
cualquiera combinación de circunstancias superiores a la
militar de un territorio enemigo tiene poder para emitir
voluntad humana, le toca en suerte sobrellevar una cruz
billetes y ponerlos en circulación como moneda corriente.
más pesada que la del prójimo. Ces't la guerre . . .
Quiero, sin embargo, destacar el siguiente hecho: que en
Se ha puesto asimismo énfasis en otro aspecto moral,
Filipinas, en virtud de una ley económica elemental, el
ético, de la cuestión, a saber: el que algunos logreros se
billete militar japonés arrojó el peso filipino del
hayan lucrado precipitándose a pagar sus deudas durante
Commonwealth de las corrientes circulatorias, forzándolo a
el apogeo de la inflación. Es indudable que algunos
buscar escondite "para mejores tiempos." Así que sin haber
deudores pudieron aprovecharse de la inflación pagando
sido condenado por la administración militar nipona, el
sus deudas durante el período en que el billete militar
peso del Commonwealth se eliminó por sí mismo. Esto
japonés tenía un poder adquisitivo muy bajo, pero esto no
determinó un resultado económico indeclinable: el absoluto
afecta a la cuestión fundamental de principio. Una vez
predominio del billete militar como instrumento de cambio
establecido jurídicamente que el banco liquidador tenía
y de pago, excepto solamente en las areas dominadas por
autoridad y facultad para recibir y aceptar pagos según las
las fuerzas de resistencia·las guerrillas. Así que, por
reglas conocidas de derecho internacional y bajo los usos y
encima de todas las abstracciones, los pagos hubieron de
prácticas sancionados en tiempo de guerra, y una vez que el
hacerse en billete militar durante la mayor parte de la
banco liquidador aceptó y recibió dichos pagos sin
ocupación japonesa, excepto en muy corto tiempo durante
discriminación en cuanto al dinero pagado, la extinción de
los primeros meses en que el peso filipino alternaba
la obligación tenía que seguir necesariamente. Habiendo
indistintamente con el billete militar. De hecho las
comenzado la liquidación en un tiempo en que aun no había
retiradas de depósito de los bancos en liquidación se
inflación·de hecho el billete militar japonés estaba casi a
pagaron todas en billete militar.
la par con el peso del Commonwealth·; y no habiendo el
Se revoca la sentencia.
gobierno militar de ocupación ni el banco liquidador
establecido una escala de valores de acuerdo con las HILADO, J, with whom concur PADILLA and TUASON,
oscilaciones y curvaturas que sufriera dicho billete en el JJ., dissenting:
accidentado curso de la inflación, no podemos ahora, so
pena de incurrir en arbitrariedad, establecer fronteras de I dissent.
demarcación que separen el período normal del inflatorio, On or about September 14, 1939, in the City of Manila,
declarando válido lo pagado en el primer período, e Philippines, Haw Pia obtained from the China Banking
inválido, total o parcial- Corporation certain credit facilities in the form of

overdraft. withdrawable through promissory notes, letters Twice did the plaintiff Haw Pia ask the Taiwan Bank to
of cancel the mortgage aforesaid and the delivery of her
torrens title covering the mortgaged property, but twice did
647
said bank refuse the cancellation (statement by Haw Pia's
counsel, p. 5, t. s. n.).
VOL. 80, APRIL 9, 1948 647
648
credit, trust receipts, bills of exchange, etc., and for the
security thereof executed and delivered to the said bank Haw Pia vs. China Banking Corporation
the mortgage indenture known in the record as "Exhibit
CC-plaintiff" or as "Exhibit Z" of "Def endant's Exhibit 1." On August 31, 1945, plaintiff Haw Pia filed suit in the
It was stipulated in that mortgage indenture (12th clause), Court of First Instance of Manila against the China
among other things, that should the mortgagee find it Banking Corporation and the Bank of Taiwan, praying for
necessary to resort to the courts in order to collect the judgment ordering the defendants to deliver to her her
indebtedness, the interests or expenses, the mortgagee Transfer Certificate of Title aforesaid, ordering the said
shall be allowed "a sum equivalent to ten per centum (10%) defendants to execute a deed of cancellation of the
of all the amounts due, but in no case less than fifteen mortgage and other remedies not pertinent to the present
hundred pesos (P1500), as attorney's fees, said amount to decision.
be considered part of the principal sum hereby secured, After certain subsequent proceedings the defendant
this mortgage answering for its payment accordingly." Thus China Banking Corporation filed its answer with special
it becomes apparent that the obligation incurred by Haw def enses and "cross-claim" under date of October 15, 1945,
Pia under the overdraft was payable in Philippine currency praying: (1) to be absolved from plaintiff's complaint; (2)
as shown by the fact that 10 per cent of it was payable in that plaintiff be sentenced to pay defendant the sum of
fifteen hundred pesos Philippine currency, as indicated by P5,103.35 with interests thereon at 9 per cent per annum
the "P" sign and considering the date in which the from December 26, 1941, compounded monthly until paid.
agreement was made. At that time, as now, the "P" sign, and the additional sum of P1,500 for attorney's fees and
used in the Philippines, stands for Philippine currency. costs of suit; (3) that plaintiff be ordered to pay defendant
As of December 26, 1941, that overdraft account had a the amount of the judgment within 90 days from and after
debit balance of P5,103.35 (defendant's Exhibit 2). the date on which Executive Order No. 32, series of 1945,
During the occupation, and under the Administrative (Moratorium order) is repealed or lifted; and (4) for general
Ordinance No. 11, dated July 31, 1942, issued by the relief.
Japanese occupation authorities, the defendant bank was The trial court rendered judgment on March 12, 1946,
allegedly placed under liquidation along with six other absolving the defendant China Banking Corporation from
"banks of hostile countries," by the Taiwan Bank, as the complaint and giving judgment pursuant to said
"liquidator." The latter bank, as pretended liquidator, and defendant's "cross-claim." Upon this appeal,
by virtue of said ordinance, received partial payments from plaintiffappellant's assignments of error may be reduced to
Haw Pia on account of the aforesaid overdraft totalling the following: (1) whether or not the Japanese Military
P6,067.13 composed of the said former balance of P5,103.35 Administration or Japanese Army of occupation had
and P963.78 as interest. All these payments were made in authority to liquidate the so-called alien or enemy banks
Japanese military notes, P303.35 in 1942, P1,200 in 1943, through the Taiwan Bank or otherwise; and (2) whether
and P4,563.78 in 1944. payments made to said supposed liquidator in Japanese

military notes by plaintiff-appellant has discharged her other person to receive the payment must be lawful, that is,
from her obligation to defendant-appellee China Banking granted by the creditor himself or otherwise conferred by
Corporation. virtue of some provision of law. There is no question that
1. Japanese occupation army, or the enemy property the alien banks denominated "hostile" in Administrative
custodian of the Japanese Military Administration, or the Ordinance No. 11, did not confer such authority on the
latter itself, through Bank of Taiwan or otherwise, had no Bank of Taiwan nor on the Japanese occupation army, or
authority to liquidate enemy banks mentioned in the enemy property custodian of the Japanese Military
Administrative Ordinance No. 11. Administration, or the latter itself, to collect or receive
payment of the debts owed said banks by their prewar
649
debtors, now involved herein, and the question arises
whether said Bank of Taiwan or said Japanese occupation
VOL. 80, APRIL 9, 1948 649 army, or enemy property custodian, or Japanese
Appellant Haw Pia principally relies on Administrative

Ordinance No. 11 issued by the Japanese Military
Administration, the subject matter of which was "the Haw Pia vs. China Banking Corporation
liquidation of the banks of hostile countries." This
contention is argued under the seventh proposition set Military Administration, was by any law, international or
forth on page 123 of the printed memorandum of Atty. municipal, authorized to do so.
Claro M. Recto, amicus curiae, as follows: Hereafter we will show that not only was such an
authority lacking but it was absolutely denied under the
"VII. Under International Law, the Bank of Taiwan, acting as
provisions of the Hague Regulations of 1907, But long
liquidator of the 'enemy' banks and as direct representative of the
before said regulations were formulated, that is, as early as
office of the enemy property custodian of the Japanese Military
1863, during the American Civil War and even before, it
Administration and/or the latter itself, was lawfully authorized to
was already an established doctrine that no such authority
demand and receive payments for and on behalf of the 'enemy'
is possessed by a conquering power, much less, therefore,
banks and inasmuch as it is admitted that the debtors paid the
by a mere military occupant, whenever the debt is owed to
Bank of Taiwan, in that capacity, their debts to said 'enemy' banks.
a private creditor and the credit belongs to him, as his
they have been and are not validly discharged from any obligation
private property.
under the municipal law."
In Planters' Bank vs. Union Bank, 16 Wall., (U.S.), 483;
21 Law. ed., 473, 479, decided by the United States
As stated in the aforequoted propostion, the theory is also
Supreme Court, April 28, 1873, it was held:
there advanced that the payments made by the debtors to
the Bank of Taiwan as such "liquidator" discharged their "* * * And it is by no means to be admitted that a conquering power
debts under the municipal law. may compel private debtors to pay their debts to itself, and that
The lower court held against this contention, and the such payments extinguish the claims of the original creditor. It does
case has been brought here on appeal. indeed appear to be a principle of international law that a
It seems self-evident that under article 1162 of the Civil conquering state, after the conquest has subsided into government,
Code, providing that "payment must be made to the person may exact payment from the state debtors of the conquered power,
in whose favor the obligation is constituted, or to another and that payments to the conqueror discharge the debt, so that
authorized to receive it in his name," the authority of such when the former government returns the debtor is not compellable

to pay again. This is the doctrine in Phillimore on International for the immediate use of the Army. In fact, the Japanese
Law, Vol. 3, part 12, ch. 4, to which we have been referred, But the Army, having the absolute power and control over the
principle has no applicability to debts not due to the conquered state. printing of its military notes without any limitation, did
Neither Phillimore nor Bynkershock, whom he cites, asserts that not need to seize such notes in other people's possession in
the conquering state succeeds to the rights of a private creditor. order to make use of the same. The so-called liquidation of
"It follows, then, that the order of General Banks was one which said alien banks appears to have been solely motivated by
he had no authority to make, and that his direction to the Union the reason that the Japanese considered them as "hostile,"
Bank to pay to the quartermaster of the army the debt due the as stated in the very title of the ordinance, and with the
Planters' Bank was wholly invalid * * *." sole object, to all practical intents and purposes, of
confiscating the credits involved and depriving the creditor
For all practical intents and purposes, by the aforesaid banks of their rights therein. If under the laws of war, as
Administrative Ordinance No. 11, the Japanese occupation found in the prevailing international law, the acts of
Commander, through the Bank of Taiwan, attempted to General Banks were not held to be permitted thereby, the
achieve what General Banks in the cited case was declared similar acts of the Japanese Commander in Chief or of the
to have been devoid of legal authority to do. Japanese occupation army, of the Japanese enemy property
The order of General Banks was made in the City of custodian, or of the Japanese Military Administration,
New Orleans when said city was in quiet possession of the through their agent the Taiwan Bank, were pos-
651 652
VOL. 80, APRIL 9, 1948 651 652 PHILIPPINE REPORTS ANNOTATED

Haw Pia vs. China Banking Corporation Haw Pia vs. China Banking Corporation
United States forces after its capture more than 15 months itively forbidden by the provisions of international law
previously and when it was in an undisturbed possession of contained in the Hague Regulations of 1907 and in force at
the Union forces. "Hence," the court says, "the order was no the time of the promulgation of Administrative Ordinance
attempt to seize property 'flagrante bello' nor was it a No. 11 and the commission of the acts of the Taiwan Bank
seizure for immediate use of the Army. It was simply an thereunder with respect to said alien banks and their
attempt to confiscate private property * * *. Still, as the credits.
war had not ceased, though it was not flagrant in the If in the Union Bank case General Bank's army had no
district, and as General Banks was in command of the power to order payment to itself, it clearly had 110 power to
district, it must be conceded that he had power to do all order payment to its appointee, if there had been one? like
that the laws of war permitted, except so far as he was
the Bank of Taiwan as regards the Japanese occupation
restrained by the pledged faith of the government, or by the
army in our case. The Hague Regulations contain in their
effect of congressional legislation. * * *" (21 Law. ed., 478.)
preamble a very significant language negativing the power
When the Administrative Ordinance No. 11 was
and authority asserted here for the Japanese army of
promulgated, the City of Manila was in quiet possession of
occupation. Said preamble stipulates:
the Japanese Forces after its capture as an open city
following the entry of the Japanese on January 2, 1942. "Until a more complete code of the laws of war has been issued, the
Hence, paraphrasing the United States Supreme Court's High Contracting Parties deem it expedient to declare that, in cases
opinion, the .said ordinance was no attempt to seize the not included in the Regulations adopted by them, the inhabitants
credits in question "flagrante bello," nor where they seized and belligerents remain under the protection and the rule of the

principles of the law of nations, as they result from the usages nationals in other countries. Germany dealt lightly with American
established among civilized peoples, from the laws of humanity, and property·and quite naturally, since German property under
the dictates of the public conscience" (Italics supplied.) American control was many times that of American property under
German control." (Italics supplied.)
But not only this, but in the specific provisions of the
regulations, we find articles 46, 47, and 53 which, In the case of Co Kim Cham vs. Tan Keh, 41 Off. Gaz., 779,
respectively, enjoin respect for private property and it was held by the majority of the Court that the powers of
prohibit confiscation of private property, sternly forbid the Japanese military forces in the Philippines, that is, in
pillage, and authorize the Army of occupation to take those parts thereof occupied by the Japanese Army during
possession only of cash, funds, and realizable securities the war, were subject to and limited by the Hague
which are strictly the property of the State, among other Regulations. As already stated, these Regulations direct in
specified items of property. For convenience, these articles, the most solemn manner that private property be respected
in so far as pertinent, are quoted below: and be not confiscated. The municipal laws of this country
at the time of the commencement of the Japanese
"ARTICLE 46. Family honour and rights,. the lives of persons, and occupation included, among others, these precepts of the
private property, as well as religious convictions and practice, must Hague Regulations by virtue of that provision in our
he respected. Constitution (Article II, section 3) to the effect that the
"Private property can not be confiscated." Philippines adopts the generally accepted principles of
"ARTICLE 47. Pillage is formally forbidden. * * * international law as a part of the law of the Nation. So
"ARTICLE 53. An army of occupation can only take possession of that, both by the direct injunctions of the Hague
cash, funds, and realizable securities which are strictly the property Regulations which bound Japan, and by the municipal law
of the State * * *." (Italics supplied.) of the Philippines, said invader was under obligation to
respect private property here and to refrain from
653
confiscating, seizing and appropriating the same. There can
be no doubt of Japan's obligations in the premises under
VOL. 80, APRIL 9, 1948 653 the direct provisions of the Hague Regulations or the rules
Haw Pia vs. China Banking Corporation of interna-
654
Amicus curiae Attorney Recto cites (pp. 149-150 of his
printed memorandum) two paragraphs from the work of
Arthur Garfield Hays entitled "Enemy Property in 654 PHILIPPINE REPORTS ANNOTATED
America," in an effort to further support his 7th Haw Pia vs. China Banking Corporation
proposition, but the fact is that this author in the passages
quoted treats of the power of a belligerent to seize and tional law as therein formulated. And so far as those rules
confiscate enemy private property within its own domain. were adopted as part of the municipal law of the
He does not say that the belligerent would also possess that Philippines, she was also enjoined to respect them, unless
power in a territory of its enemy temporarily occupied by it absolutely prevented, by article 43 of the same Regulations
during the course of the war. Thus, the author says: reading:
"In its acts each belligerent had before its eyes the possible extent of "The authority of the legitimate power having in fact passed into
retaliation and was, therefore, guided in its procedure by the the hands of the occupant, the latter shall take all the measures in
proportion of the enemy in its country as compared with that of its his power to restore and ensure, as far as possible, public order and

safety, while respecting, unless absolutely prevented, the laws in consent.

force in the country." Even bef ore the Hague Regulations of 1907 were
adopted, international law already made it the duty of a
It is of course obvious that Japan was not absolutely belligerent occupant not to annul private rights nor to
prevented from respecting the laws of the Philippines which disturb the relations of the inhabitants to each other. In U.
enjoin respect for and forbid confiscation of private S. vs. Percheman, 7 Pet. (U. S.), 51, 8 Law. ed., 608, 617,
property. Chief Justice Marshall, speaking for a unanimous court,
We have said above that the Japanese occupation army, said:
or the enemy property custodian of the Japanese Military
Administration, or the latter itself, through the Bank of "* * * The modern usage of nations, which has become law, would be
Taiwan or otherwise, was absolutely denied under the violated; that sense of justice and of right which is acknowledged
provisions of the Hague Regulations of 1907 the authority and felt by the whole civilized world would be outraged, if private
to liquidate the enemy banks mentioned in Administrative property should be generally confiscated, and private rights
Ordinance No. 11. We will now show it. annulled. The people change their allegiance; their relation to their
Article 53 of the Regulations, as we have recalled, allows ancient sovereign is dissolved; but their relations to each other, and
the army of occupation to take possession only of cash, their rights of property remained undisturbed * * *" (The great
funds, and realizable securities which are strictly the jurist was speaking of a case of conquest. With how much more
property of the State. A liquidation such as that attempted vehemence he would have uttered his learned pronouncements, had
by the Bank of Taiwan of the above-mentioned alien banks, he been referring to a mere provisional military occupation of
necessarily and inevitably requires its taking possession of enemy territory during the progress of a war, we can easily
the cash, funds, and realizable securities involved in the imagine.)
transactions to be liquidated. If that taking of possession is "* * * As the population does not owe the occupying commander
essential to the liquidation·if without it the liquidation allegiance, and as his authority is based merely on military
would be impossible·but it is f orbidden, how can it be necessity and so is provisional, it follows that, unless military
said that the liquidation is permitted? exigencies imperatively demand otherwise, he must administer the
Article 46 of the Regulations, as we have seen, enjoins existing territorial law, and must not interfere with the existing
respect for private property, and forbids its confiscation. rights and obligations of the inhabitants, and in particular must not
(Hereafter we will ,show that the so-called liquidation of infringe the provision laid down in article 231" (II Wheaton's
the alien banks was in fact confiscation.) For the present International Law, 7th English ed., p. 236; italics supplied).
we will speak of respect for it. Of course, it is beyond cavil "SEC. 283. If the occupant has performed acts which, according
that credits and contractual rights relating to any to International Law, he was not competent to perform,
postliminium makes the invalidity of these illegitimate acts
655 apparent. Therefore, if the occupant has sold immovable State
property, such property may afterwards be claimed from the
VOL. 80, APRIL 9, 1948 655 purchaser, whoever he is, without compensation. If he has
appointed individuals to offices for terms outlasting the occupation
they may afterwards be dismissed. If he has appropriated and sold
such private or public property as may not be legitimately be
kind of property, whether money or otherwise, are property appropriated by a military occupant, it may afterwards be claimed
and if they belong to a private owner, are private property. from the purchaser without payment
Respect for such private property requires that it be not
interfered with, that nothing be done with it, in a manner 656
injurious to the rights of its owner without the latter's

656 PHILIPPINE REPORTS ANNOTATED occupied territories, although he can control them, and must
Haw Pia vs. China Banking Corporation certainly not sell their real estate (see above, section 140), even if
657
of compensation." (II Oppenheim, International Law, 6th Rev. Ed.,
p. 483; italics supplied.)
VOL. 80, APRIL 9, 1948 657
If such illegitimate sale of immovable State property, and
such illegitimate appropriation and sale of public or private
property by the military occupant, are thus annulled, so
the proceeds are to be handed over to them after the war." (Italics
must an illegitimate liquidation of private banks in the
supplied.)
occupied territory be after the final defeat of the occupant,
for "postliminium makes the invalidity of these illegitimate Hyde declares (Vol. III, p. 1878):
acts apparent."
Even the passage from Halleck quoted on page 142 of "Belligerent occupation, being 'essentially provisional,' does not
the amicus curiae's memorandum says that "the serve to transfer sovereignty over the territory controlled, * * *.
government established over an enemy's territory during There has developed, accordingly, a body of law indicating the scope
the military occupation may exercise all the powers given of the rights of the occupant over the hostile territory and limiting
by the laws of war to the conqueror over the conquered, and his freedom of action. The Hague Regulations of 1907 have
is subject to all the restrictions which that code embodies" exemplified it. It indicates the test of the propriety of his conduct
(Italics supplied.) with respect to what is under his sway. While this law is essentially
In this connection, a most important distinction should international in character and origin, it is also local, because it
be constantly kept in mind between the extent of control prevails in principle where the occupant asserts his control." (Italics
legally exercisable of enemy property within the supplied.)
belligerent's own domain and that within merely occupied
territory: it is greater in the former than in the latter case. In G. R. No. L-409, Laurel vs. Misa, promulgated July 16,
And to the former case refer the quotations supposed to 1947, 44 Off. Gaz., 1176, we also held that there was no
support the proposition on page 142 of the memorandum of transfer of sovereignty in the Philippines during the
the amicus curiae, as shown by the passage from Hyde Japanese occupation. Hence, the Philippine areas occupied
(Memorandum, p. 143) subheaded thus: by Japan did not become a part of her territory or domain,
with the result that the rules governing the power and
"Control of enemy property within the national domain." authority of the Japanese occupation army in the
Philippines to control enemy property here during the
On the other hand, Oppenheim (p. 313), dealing with the occupation are those which obtain under the Hague
military occupant's control of enemy property in the Regulations and International Law for belligerent
occupied territory, says: occupation of enemy territory during the course of a war,
and not the laws of Japan herself governing her control
"Private personal property which does not consist of war materials
over enemy property within her national domain.
or means of transport serviceable for military operations may not as
a rule be seized." "The rights of a belligerent occupant as such, during the period of
control exercised over the hostile territory concerned are measured
In his footnote to the above we read this categorical
by the circumstances that he is to be regarded as a temporary
declaration of principle:
possessor of what he controls rather than as a conqueror bent on the
"Nor may the occupant liquidate the businesses of enemy subjects in acquisition of the occupied area * * *." (III Hyde, p. 1879; italics

supplied.) embracing all deposits or securities held by it, opining that

"The Hague Regulations of 1907 announce that private property. those shown to be held in trust for, or to belong to, private
'must be respected'; that such property 'cannot be confiscated,' also individuals, should be respected as private property, and
that 'pillage is formally forbidden,' an injunction seemingly their treatment governed by the Hague Regulations
applicable to public as well as private property, and possessed of applicable to such property. As to private banks, their
wide implications * * *." (Ibid., p. 1894.) credits, funds, cash or securities are of course private
property, no less than the deposits or securities held by
And Mr. Hyde maintains the theory, which is clearly them belonging to their depositors or held in trust for other
justified by the Hague Regulations and the general parties dealing with them.
principles of International Law, that debts due to the To the same effect is the article by Mr. Colby referred to
inhabit- on pages 143-145 in the memorandum of the amicus curiae.
658
This article is entitled "Occupation under the Laws of War"
(Vols. XXV and XXVI, Columbia Law Review), and
throughout the article the author recognizes the limita-
659
ants of the occupied district are not to be distinguished VOL. 80, APRIL 9, 1948 659
from tangible property, and should also be immune from Haw Pia vs. China Banking Corporation,
confiscation, and he very soundly maintains that if a
private debtor owes a private creditor, both residing in that tions upon the powers of the occupant imposed by the
territory, no reason is apparent why the occupant should Hague Regulations and the laws of war, and makes the
have the power to cancel the debt. He says: following significant statement in the last paragraph:
"It is believed that no distinction should be made between tangible "It is not my purpose to plead for unlimited power to occupant
and intangible or incorporeal private property, such as debts due to forces in all circumstances,"
the inhabitants of the occupied district, with respect to the duty of
the belligerent to refrain from confiscation * * *. If the debtor is a The same writer, as quoted on page 142 of the
private individual residing in that territory, and the creditor an memorandum of the amicus curiae, makes his opinion more
inhabitant of the occupied district, no reason is apparent why the categorical in the following statement:
occupant should be entitled to cancel the debt" (Ibid., p. 1894, italics
supplied.) "The only remaining method is to check the acts (of the occupant)
against the Hague Conventions" (in determining their lawfulness or
The alien banks involved here are not central or national unlawfulness)·(italics supplied).
banks but are entirely private in character. As such, they
enjoyed complete immunity from being liquidated, were Hall, an English writer on International Law, is one of the
entitled to have their credits respected, and not taken authorities cited by the amicus curiae. Concerning the
possession of or confiscated by the Japanese occupant. Mr. fiction of substituted sovereignty as maintained by the
Hyde says (Vol. III, p. 1898) that even in the case of central older theories, and upon which the powers of confiscation
or national banks, the right of the occupant to control their had of old been asserted, he makes certain very categorical
operations or to administer them under its own auspices declarations which we shall quote below. Before doing so,
would not necessarily be decisive of its right to treat as however, we refer to that statement by Magoon (cited in
public property all of the assets of the institution, amicus curiae's memorandum, p. 145) that "the right of

confiscation is a sovereign right." Now, Hall characterizes moreover his rights belong to him only that he may bring his war to
those older theories as effete: a successful issue, it is his duty not to do acts which injure
individuals, without facilitating his operations, or putting a stress
"Looking at the history of opinion with reference to the legal upon his antagonist. Thus though he may make use of or destroy
character of occupation, at the fact that the fundamental principle both public and private property for any object connected with the
of the continuing national character of an occupied territory and its war, he must not commit wanton damage, and he is even bound to
population is fully established, at the amount of support which is protect public buildings, works of art, libraries, and museums."
already given to the doctrines which are necessary to complete its (Hall, p. 498; italics supplied.)
application in detail, and to the uselessness of the illogical
oppressive fiction of substituted sovereignty, the older theories may Later on we will discuss the question of whether or not
be unhesitatingly ranked as effete and the rights of occupation may there was military necessity for the Japanese occupation
be placed upon the broad foundation of simple military necessity. army to liquidate alien banks under Administrative
"155. If occupation is merely a phase in military operations, and Ordinance No. 11. At this point, it is well to quote that in
implies no change in the legal position of the invader with respect to the year 1942 Feilchenfeld, whom the amicus curiae also
the occupied territory and its inhabitants, the rights which he cites, said. This writer said:
possesses over them are those which in the special circumstances
represent his general right to do whatever acts are necessary for the "PAR. 12. The rules of belligerent occupation have been codified in
prosecution of his war; in other words he has the right of exercising Section III of the Hague Regulations, respecting the Laws and
such control, and such control only within the occupied territory, as Customs of War on Land, entitled 'On military Authority over the
is required for his safety and the success of his operation * * *. In its Territory of the Hostile Estate,' and comprising articles 42-56 of the
exercise (the authority of the occupant) however this ultimate Regulations.
authority is governed by the condition that the invader, "PAR. 13. This body of law has survived all historical change
since 1914 * * *." (Italics supplied.)
660
* * * * * *
660 PHILIPPINE REPORTS ANNOTATED "PAR. 40. Section III of the Hague Regulations is the outcome of
Haw Pia vs. China Banking Corporation developments extended over many centuries.
* * * * * *
only having a right to such control as is necessary for his safety and
the success of his operations, must use his power within the limits "PAR. 41. During the nineteenth century earlier legal
defined by the fundamental notion of occupation, and with due developments became consolidated under the influence of liberal
reference to its transient character. ideas which restricted the traditional powers of occupants by
"160. Though the fact of occupation imposes no duties upon the subjecting them to
inhabitants of occupied territory the invader himself is not left
equally free. As it is a consequence of his acts that the regular 661
government of the occupied country is suspended, he is bound to
take whatever means are required for the security of public order; VOL. 80, APRIL 7, 1948 661
and as his presence, so long as it is based upon occupation, is.
confessedly temporary, and his rights of control spring only from the
necessity of the case, he is also bound, over and above the limitations
rules against the assumption of full sovereignty and against undue
before stated, to alter or override the existing laws as little as
interference with civilian and property interests." (Italics supplied.)
possible, whether he is acting in his own or the general interest. As

* * * * * * * Haw Pia vs. China Banking Corporation
"PAR. 340. Since the powers of occupants are based on the right
nations, as they result from the usages established among
to protect military interests and to promote law and order, it would
civilized peoples, from the laws of humanity, and the
seem that an occupant may not interfere with purely private
dictates of the public conscience" (Preamble, The Hague
relationships, and may not, for instance, arbitrarily pass
Regulations.)
regulations under which the wealth of one individual is handed over
The Field Manual cited by the amicus curiae and relied
to another." (Italics supplied.)
upon by him, by its own terms, is subordinated to the Rules
But the amicus curiae quotes (p. 149 of his memorandum) of Land Warfare embodied in War Department Basic Field
from the United States Army and Navy Manual of Military Manual (FM-27-10). The manual invoked by the amicus
Government and Civil Affairs (FM-27-5 OPNAV 50-E-3) curiae, contains the following provisions at the very
wherein, among other things, it is stated that in the beginning:
occupation of the territories therein mentioned for a "For restraints on the discretion of the theater commander in
considerable period of time the civil affairs officers "will in dealing with persons and property in occupied territory, see War
most cases be concerned with," among other matters, Department Field Manual 27-10 (Rules of Land Warfare)."
"closing, if necessary, and guarding of banks, bank funds,
etc.; liquidation, reorganization, and reopening of banks at In turn, this Field Manual 27-10 is subordinated to the
appropriate times * * *." Hague Regulations which it quotes verbatim, article by
In the first place, to be concerned with the liquidation of article. The result is that the language of the manual relied
banks is certainly not tantamount to such officers making upon by the amicus curiae must be deemed to be controlled
the liquidation themselves or ordering it; and if we and limited by the provisions of Field Manual 27-10 and
construe the passage in the light of the prohibitions of the the Hague Regulations incorporated therein.
Hague Regulations already discussed, the conclusion is Under article 53, paragraph 1, of the Hague
inevitable that it can not possibly be interpreted as Regulations. quoted in paragraph 320 of the Field Manual
authorizing the occupation officers to themselves make the 27-10 aforesaid, said manual provides in paragraph 321:
liquidation of purely private banks. In the second place, to
be concerned with such liquidation simply means that the "321. Two classes of movable property.·All movable property
officers in question have the power and the duty to seeing belonging to the State directly susceptible of military use may be
to it that, where such a liquidation is made as authorized taken possession of as booty and utilized for the benefit of the
by the laws governing the territory, under the economic invader's government. Other movable property, not directly
circumstances created by or concurring during the susceptible of military use, must be respected and cannot be
occupation, it is done properly, legally and honestly·not appropriated." (Italics supplied.)
that they themselves may take the initiative to effect or
The cash, funds, or realizable securities of the private alien
order the liquidation. What laws govern the occupied
banks here were not "strictly the property of the state," nor
territory is, of course, determined primarily by the Hague
"directly susceptible of military use."
Regulations, and in a suppletory manner, in all that has
As a matter of fact, it is not pretended that the Japanese
not been provided thereby, by "the principles of the law of
army ever intended to use the military notes collected by
662 the Bank of Taiwan from the prewar debtors of these alien
banks for military purposes. It is asserted that the Taiwan
Bank used them, or part of them, in paying with-
663

VOL. 80, APRIL 9, 1948 663 very daring act it would have been) with the
Haw Pia vs. China, Banking Corporation representatives of the banks, pay the
664
drawals allegedly made by the alien banks' depositors or in
the supposed payment of supposed obligations of the same
banks.
Indeed, under the terms of article 53 of the Hague Haw Pia vs. China Banking Corporation
Regulations permitting an army of occupation to take
possession only of cash, funds and realizable securities amounts of their debts to the guerrillas or to the
which are strictly the property of the state, necessarily underground, why were these alien banks singled out for
prohibits the taking possession of those which are of liquidation to the exclusion of the other banks existing in
private ownership even on the ground of military necessity. Manila? Besides, there would have been no need of such
At this juncture, it behooves us to remember that even liquidation. If this was the only purpose, the same objective
military necessity is powerless when confronted by the could have been attained by the Japanese Army sealing the
prohibitions of the modern laws and customs of war, vaults and safes, closing the banks and placing them under
particularly those which have been codified in the Hague guard, with the simple but most effective expedient of a
Regulations of 1907. The Basic Field Manual on Rules of proclamation of the Commander in Chief or even of an
Land Warfare, FM27-10, above referred to, speaking of inferior officer, forbidding the debtors under pain of death
"military necessity" provides: ·that was the vogue in those bloody days·to pay or
deliver to the guerrillas, the underground, or to anybody
"23. Military necessity.·Military necessity justifies a resort to all
else, any amount on account of their debts to the said
the measures which are indispensable for securing this objective
banks.
(the submission of the enemy) and which are not forbidden by the
In Williams vs. Bruffy, 96 U. S., 176; 24 Law. ed., 716, it
laws and customs of war." (Italics supplied.)
was held that payment of debts to a party without
Oppenheim says on page 268 of his work already cited authority to demand the payment is not valid. In that case
above: the lack of authority arose from the unlawful combination
of the confederate states to rise against the union in
"But·to use the words of article 22 of the Hague Regulations·the dafiance of the constitution. In the case at bar the
belligerents have not an unlimited right as to the means they adopt authority claimed for the Bank of Taiwan to exact the
for injuring the enemy." (Italics supplied.) payments is sought to be derived f rom the Japanese
occupation army, but that army, as we have seen, was
The very title and first paragraph of Administrative denied by the Hague Regulations the power to liquidate or
Ordinance No. 11, moreover, conclusively show that it was order the liquidation of private banks. Furthermore, if in
not military necessity that motivated the so-called the Bruffy case the confederacy was held to be an unlawful
liquidation of these alien banks, but solely the fact that combination leading to the illegality or invalidity of the
they were considered and called "banks of hostile payment, in our case, the war of aggression which was
countries." For, if the Japanese feared (entirely without being waged by Japan and, of which the Japanese
foundation) that the funds and assets of banks might be occupation and the so-called liquidation of said alien banks
used against them, or, as was argued during the were mere incidents, was far more unlawful for being a
deliberation on this case, if they feared that the banks' crime against humanity proscribed and penalized by
debtors, unless made to pay to the Bank of Taiwan under modern international law. As solemnly declared in the
the ordinance, might, through some secret arrangement (a BriandKellog Pact, of which Japan herself was a signatory,

"unjustifiable war is a crime." The Geneva Protocol of 1924 According to Taylor (p. 587) this section of the Hague
for the Pacific Settlement of International Disputes Regulations clearly defines the extent to which the invader
declared that "a war of aggression constitutes and * * * may subject the inhabitants of occupied territory and its
international crime." So did the Eighth Assembly of the resources to the necessities of war. He says:
665 "Since then, the whole subject has been regulated by Section III of
the Hague Second Convention 'On Military Authority over Hostile
Territory,' which clearly defines the extent to which the invader may
VOL. 80, APRIL 9, 1948 665
League of Nations in 1927. The Sixth Pan-American 666 PHILIPPINE REPORTS ANNOTATED
Conference of 1928 pronounced such a war "an Haw Pia vs. China, Banking Corporation
international crime against the human species." (Report of
Justice Jackson of the U. S. Supreme Court, as chief subject the inhabitants of the occupied territory and its resources to
counsel for the U. S. in the prosecution of "Axis war the necessities of war."
criminals," of June 7, 1945.)
In Williams vs. Bruffy, supra, we read the following Against the argument that because banking is a public f
passage which is remarkably applicable by analogy to the unction, it may be regulated by the occupant, it is sufficient
case at bar: to answer that the power of regulation can never be validly
used to clothe what is really confiscation or pillage. The
"But, debts not being tangible things subject to physical seizure and
subject of confiscation will be treated of separately
removal, the debtors cannot claim release from liability to their
hereafter. We would only advert here and now to those
creditors by reason of the coerced payment of equivalent sums to an
provisions of the Hague Regulations already quoted which
unlawful combination. The debt can only be satisfied when paid to
deny to the occupant such a power as to put a privately
the creditors to whom they are due, or to others by direction of
owned bank out of business or to disturb and interfere with
lawful authority. Any sum which the unlawful combination may
its legitimate contractual relations with its customers. The
have compelled the debtors to pay to its agents on account of debts
alien banks here involved do not even come within that
to loyal citizens, cannot have any effect upon their obligations; they
class referred to by Mr. Hyde (Vol. III, 1898), where the
remain subsisting and unimpaired. * * *" (24 Law. ed., 719.)
particular fiscal organization bears such a relationship to
The contention that the so-called liquidation of said alien the territorial sovereign as to justify the treatment of the
banks was valid and legal runs counter to all of section III bank as a public enemy concern, and its assets as public
of the Hague Regulations which, as held in the Co Kim enemy property. Mr. Hyde's statement is as follows:
Cham case, regulated and controlled the powers of the "In the case of banks functioning in occupied territory the question
Japanese occupation forces in the Philippines. This part of is likely to arise, whether the particular fiscal organization bears
the Regulations is entitled "On Military Authority over the such a relationship to the territorial sovereign as to justify the
Territory of the Hostile State." Thus Feilchenfeld says: treatment of it as a public enemy concern, and its assets as public
"12. The rules on belligerent occupation have been codified in enemy property. A variety of factors may call for due appraisal in
Section III of the Hague Regulations respecting the Laws and each case that presents itself. Thus, the institution may be strictly a
Customs of War on Land, entitled 'On Military Authority over the private concern as tested by the local law, conducting its affairs,
Territory of the Hostile State,' and comprising articles 42-56 of the however, chiefly for the benefit and possibly under the direction of,
Regulations." the territorial sovereign. Again, it may be wholly or for the most

part owned by that sovereign. The depositors may be both private of the branch offices, there was no intention to seize funds
individuals and public agencies of the State within whose domain it belonging to the bank. The decree extended only to state funds."
operates." (Italics supplied.) (Paragraph 361.)
And Mr. Feilchenfeld (International Economic Law of And in paragraph 362 he says:
Belligerent Occupation, pages 96-104), mentions under
paragraph 357 both the Bank of France in 1870 and 1871 "362. The course and the outcome of the negotiations have been
and the Bank of Belgium from 1914-1918 as having been rightly regarded as a further confirmation of the recognition of the
treated as private institutions (and consequently protected rule that private bank funds may not be seized by an occupant, and
under those provisions of the Hague Regulations enjoining that institutions like the Bank of France must be treated as private
respect for private property). corporations." (Italics supplied.)
667 2. Conceding arguendo that Administrative Ordinance No.

11 validly authorized liquidation of alien banks·under
such hypothesis the least that should be required of the
VOL. 80, APRIL 9, 1948 667 liquidator was that in effecting the liquidation, it must not
Haw Pia vs. China Banking Corporation alter, disturb, much less annul, the substantive rights and
668
This author says:
"357. The treament of central banks has been controversial. State 668 PHILIPPINE REPORTS ANNOTATED
practice is not available on all types of central banks. However, both
the Bank of France in 1870 and 1871 and the Bank of Belgium from
1914 to 1918 were treated as private institutions," (Italics supplied.)
obligations of the parties, the creditor banks and their pre-
Even Germany, the senior partner of Japan in World War war debtors.
II, before the Bank of Taiwan attempted the so-called This is the kind of liquidation with which the civil
liquidation here in question, had, by previous acts, affairs officers mentioned in the United States Army and
recognized the unlawfulness of such a procedure. In his Navy Manual of Military Government and Civil Affairs
work, Feilchenfeld makes reference to the fact that the (FM 27-5 OPNAV 50-E-3) "will in most cases be concerned."
seizure of the assets of the local branch of the Bank of In order that the liquidation might be made in that
France in Rheims in 1870 was recognized as an error by manner, there should be no impairment of the obligation of
the Germans (par. 360); that upon the capture of the preexisting contracts between the banks and their
Strasbourg by the Germans on September 28, 1870, the prewar debtors, for among the laws of the Philippines
German Governor General having in mind the which the Japanese occupant was bound to respect,
administration of Alsace-Lorraine, "appointed a liquidator because he was not absolutely prevented from doing so,
for the branch offices of the Bank of France and under was the provision in our constitution against the
which all funds belonging to the French State and held by impairment of the obligation of contracts; and this being a
these branches were to be confiscated." provision based upon natural justice, equity, and reason, so
Feilchenfeld adds: much so that the Japanese Government could not help
approving its inclusion in the constitution of the puppet
"It appears that the Germans implicitly recognized both the general Republic that it established here during the occupation
rules of law and the private-law character of the Bank of France (Article VII, section 4 thereof), and considering that such
and of its branches. While changes were made in the administration impairment would inevitably entail the obliteration of
property rights (in the present case to the tune of explained by parol evidence."
P34,311,330. in good Philippine money), it was against "the
principles of the law of nations, as they result from the In the case at bar the contract between Haw Pia and the
usages established among civilized peoples, * * * the laws bank, like the contracts between the other alien banks and
of humanity, and the dictates of the public conscience" their respective prewar debtors, were to pay pesos, and
(Preamble, The Hague Regulations), to impair the were made while the country was at peace under its
obligation of said contracts. legitimate government. And paraphrasing the foregoing
In a genuine bank liquidation the liquidator simply pronouncement of the Federal Supreme Court, those
exercises in the collection of the credits the rights of the contracts were clearly contracts to pay lawful money of the
creditor bank, and in the payment of the debts simply f Philippines. In the Thorington case, the contract between
ulfills the obligations of the same bank to its depositors or debtor and creditor was made during the civil war and in a
creditors, under its existing contracts with the other state which was in rebellion against the union. That is why
parties to the transactions involved. The liquidator does parol evidence was allowed to prove what kind of dollars
not possess the power to in any manner change, alter or was meant by the contract, whether lawf ul money of the
modify, much less nullify, such rights or obligations. This is union or dollars of the confederacy.
self-evident. So that if under the existing contract the bank Our case is radically different, because the contracts
has the right to be paid in genuine Philippine money having been made during peace time, and they providing
because that was the money that it loaned to its debtor. for the payment of pesos there could be no doubt that
genuine Philippine pesos were meant. At that time nobody
669 dreamed that there was going to be imposed upon our
people such a thing as the Japanese military notes, a war
VOL. 80, APRIL 9, 1948 669 670
and because the law so directs, the liquidator has no power
to alter the bank's rights in this regard. The circumstance
that the liquidator is an agent of an occupation army does
not matter. Conversely, under such a contract the creditor currency without backing except the Japanese bayonet,
bank or the liquidator, would not have had the right to quickly depreciating and eventually becoming worthless.
demand payment in any other currency than the Philippine 7 Am. Jur. (page 524, section 727) has this to say
peso, the Japanese occupation notwithstanding. When the regarding the functions and powers of a liquidator:
debt was contracted in the case at bar, a promissory note "* * * He has, upon taking charge of the bank (insolvent bank), all
was executed and delivered by the debtor and there the the rights and equities in favor of the bank and for the benefit of the
amount contracted for was stated to be in pesos. depositors, creditors, and stockholders * * *."
In the case of Thorington vs. Smith, 8 Wall. (U. S.) 1, 11-
12; 19 Law. ed., 361, 364, the Surpeme Court of the United If, therefore, those "rights and equities" require payment in
States, inter alia, held: a certain currency, how can the liquidator have the power
to alter them so as to make them payable in a different and
"It is quite clear that a contract to pay dollars, made between
depreciated, and ultimately worthless currency?
citizens of any State of the Union, while maintaining its
The Civil Code provides:
constitutional relations with the National Government, is a contract
to pay lawful money of the United States, and cannot be modified or "ART. 1753. One who receives a loan of money or any other fungible

thing acquires ownership thereof and is bound to return to the capital prestado y sus intereses, subsistente la garantía hipotecaria
creditor an equal amount of the same kind and quality. (Italics y estimando procedente la reconvención formulada por los
supplied.) demandados para que se condenase al actor al pago de dicho
"ART. 1754. The obligations of persons who borrow money shall préstamo, se ha interpuesto el presente recurso, cuyo primer
be governed by the provisions of article 1170 of this code. motivo, amparado en el número 1.° del artículo 1692 de la Ley de
Enjuiciamiento Civil, denuncia la infracción de los artículos 1176 y
* * * * * * * 1180 del Código Civil y de la doctrina sustentada en la sentencia de
esta Sala, invocada en dicho motivo, por entender que la
"ART. 1170. Payment of debts of money shall be made in the
consignación se hizo con observancia de todos los requisitos que la
specie stipulated and, should it not be possible to deliver such
regulan, por lo que debe surtir los efectos del pago; pero la
specie, in silver or gold coin legally current in (the Philippines).
expresada alegación no puede prosperar, porque pactado el pago en
* * * * * * * la escritura de préstamo en moneda corriente y legítima de oro o
plata, y siendo" evidente la enorme depreciacion de aquella en que
The "specie stipulated" spoken of in this article may be se pagó, no puede sostenerse que la consignación, que en todo caso,
stipulated expressly or impliedly; and in the absence of an y conforme al artículo 1177 del Código Civil, habrá de ajustarse a
express stipulation, all reasons of natural justice and las disposiciones reguladoras del pago, se realizó conforme a las
common sense tell us that the parties must have intended mismas·condición precisa para atribuirle efecto liberatorio·, ni
the debtor to pay his creditor in the same currency that he que el acreedor se opusiera sin razón a aceptarla, como dice el
received from the latter: indeed, article 1753 of the Code artículo 1176; y por ello, tal motivo debe ser desestimado de acuerdo
categorically so ordains. As against the above-quoted con la doctrina recientemente sostenida por este Tribunal en
specific provisions of our law, which have not been shown to sentencias de 4 de julio de 1944 y 12 de marzo y 26 de abril de 1946,
have counterparts in American law, the quotation from the pues en estas últimas se trataba de cláusulas donde expresamente
Legal Tender Cases on pages 84-86 of Mr. Recto's se consignaba que el caso de hacerse el pago en papel se abonaría la
memorandum are unavailing. diferencia de valor entre este y las especies monetarias de oro o
In a very recent decision of the Supreme Court of Spain, plata, y no puede ponerse en duda que al pactarse, como en el caso
that of November 23, 1946, (Información Jurídica, presente, que el pago se verificaría en moneda corriente de oro o
published in Madrid by the Ministerio de Justicia, página plata gruesa, fué la intención de los contratantes que se realizase en
128), moneda equivalente a la recibida al celebrarse el contrato de
préstamo." (Información Jurídica, publicada por el Ministerio de
671
Justicia, Comisión de Legislación Extranjera, en Madrid, Núms. 50-
51, julio-agosto 1947, p. 128 [Jurisprudencia del Tribunal Supremo];
VOL. 80, APRIL 9, 1948 671 italics supplied.)
Haw Pia, vs. China Banking Corporation In our case the promise evidently was to pay in Philippine
money, because: (1) that was the money loaned; and (2)
we read the following under the title "Jurisprudencia del that was the lawful money of the Philippines at the time
Tribunal Supremo": Haw Pia contracted the overdraft. (Thorington vs. Smith,
supra.)
"Sentencia de 23 de noviembre de 1946.·Cláusula de oro y
depreciación del dinero 672
"Contra la sentencia de la Audiencia de Albacete, confirmatoria de

la del Juzgado, declarando ineficaz la consignación, impagado el 672 PHILIPPINE REPORTS ANNOTATED


Manresa, Volume 11, 4th edition, page 543, commenting on
It appears from the above-quoted decision that it was article 1753 of the Code, says:
concerned with a loan secured by a mortgage contracted
"Préstamos en dinero.·Siempre se rigieron los pagos en metálico
before the adoption of a certain enormously inflated
por leyes especiales, en consideración al distinto valor de la moneda,
currency in Spain. It also appears therefrom that (a) the
siendo discutidísima entre los jurisconsultos la cuestión que con
"Audiencia de Albacete" declared the consignation invalid,
relación al contrato de préstamo podía producir esa alteración. Así,
the principal loaned and its interest unpaid, the mortgage
mientras Cujas y Vinio opinaban que el prestamista, al efectuar el
security subsisting, and upheld the counterclaim of the
contrato, en su mente tenía el que a su término se le devolviera una
defendants (creditors) praying for judgment against the
cantidad igual a la prestada para no enriquecerse a costa del
plaintiff (debtor) for the payment of the loan; and (b) that
prestatario ni empobrecerse por los riesgos del valor de la cosa
the judgment of the "Audiencia de Albacete" was sustained
prestada, Doneau y Pothier, estimaban que esos riesgos debían
by the Supreme Court on two grounds, namely, (1) that it
siempre ser de cuenta del acreedor. El Código resuelve la cuestión,
having been stipulated in the document of loan that the
determinando que los préstamos de dinero se rijan por lo dispuesto
payment shall be in current gold or silver coin, and
en el artículo 1.170; esto es, la restitución se hará en la especie
(translating) "the enormous depreciation of that in which it
pactada, y no siendo posible entregar la especie, en la moneda de
was paid being evident, it can not be maintained that the
plata u oro que tenga curso legal en España. En el primer caso, por
consignation, which in any case, and pursuant to article
la Ley del Contrato, el acreedor debe recibir la moneda
1177 of the Civil Code, must be in accordance with the
específicamente determinada, monedas del mismo valor, peso y ley
provisions regulating payment, was made in accordance
que corrían al tiempo del contrato. En su virtud, si se pacto la
therewith·an undispensable condition to give it liberatory
devolución en moneda de oro, así deberá hacerse, sin que quepa,
effect·nor that the creditor refused without reason to
como decíamos al comentar el citado artículo, pagar en plata,
accept it, as article 1176 says, the contention of the
aunque sea abonando la diferencia del cambio, porque ello
appellants (debtors) could not be upheld and should be
equivaldría a autorizar una variación en la especie pactada. * * *
overruled; and (2) that in stipulating that the payment
(Italics supplied).
shall be made in current gold coin or "plata gruesa," the
intention of the contracting parties was that it shall be The above-mentioned provisions of our municipal laws in
realized "en moneda equivalente a la recibida al celebrarse force at the time of the Japanese invasion were expressly
el contrato de préstamo," the textual words of the decision continued in force by the Commander in Chief of the
reading: "* * * y no puede ponerse en duda que al pactarse, Imperial Japanese Forces through his proclamation dated
como en el caso presente, que el pago se verificaría en January 3, 1942 (I. O. J. of the Japanese Military
moneda corriente de oro o plata gruesa, fué la intención de Administration, 3rd ed., p. 2), in the following words:
los contratantes que se realizase en moneda equivalente a
la recibida al celebrarse el contrato de préstamo." (Italics "(4) So far as the Military Administration permits, all the laws now
supplied.) And how can it be seriously affirmed that the in force in the Commonwealth, as well as executive and judicial
Japanese military notes were a "moneda equivalente" to institutions shall continue to be effective for the time being as in
our genuine currency? the past * * *."
673 And in the specific matter of currency, the same

Commander in Chief issued another proclamation, dated
January 10, 1942 (Ibid, p. 38) from which we quote in part:
VOL. 80, APRIL 9, 1948 673
Haw Pia vs. China Banking Corporation "The currencies which shall be sanctioned by the authorities of the

Japanese Army to circulate in the Philippine Islands shall be the suspend laws affecting property and private personal relations, or
Peso military notes which are issued by the Imperial Japanese which regulate the mortal order of the community."
Government, and the Philippine Peso currency, which is already in
circulation" Among such rules affecting property and private personal
relations are the aforecited articles of the Civil Code. We
674 have failed to find any proclamation, order, or decree of any
kind of the Japanese military or civil authorities stationed
in the Philippines during the war which has atempted to
vary or suspend said laws.
675
On February 6, 1942, said Commander in Chief issued

another proclamation accompanied with an explanation VOL. 80, APRIL 9, 1948 675
(Ibid, pp. 43-44), from which explanation the following
partial quotation has been taken:
"Currencies approved by the Commander in Chief of the Imperial However, the above is not all: we fail to find either in
Japanese Forces at persent are: Administrative Ordinance No. 11 or in the numerous
proclamations, orders, etc. of the Japanese Commander in
"I. Peso Military notes issued by the Imperial Japanese Chief and of the Japanese Military Administration,
Government. published in the Official Journal of the said
"II. Philippine Peso currency. Administration, that would even hint that they intended
thereby to impair the obligation of contracts already
* * * * * * * existing when the occupation began. Indeed, as already
stated, such impairment was sternly forbidden in the
"In short no currency is allowed to circulate except Peso military
constitution of the puppet Republic which was approved by
notes issued by the Imperial Japanese Government and Philippine
the Japanese Government. Even judging for a moment the
Peso Currency."
rights of appellant Haw Pia herein from the point of view of
We have reviewed all suceeding volumes of the Official the constitution of the puppet Republic, since she made the
Journal of the Japanese Military Administration, and have payments in Japanese military notes during the
found no proclamation, order, or decree of any kind occupation, she must, in all justice and fairness, be held to
subsequently banning the use and circulation of the respect the inhibition of that instrument against the
Philippine Peso currency which was already in use here at impairment of the obligation of contracts, and should,
the time of the invasion. Much less have we found any therefore, not now be allowed to say that, because she paid
proclamation, order or decree of any kind which, expressly Japanese military notes to the Bank of Taiwan in
or impliedly, order, the payment of prewar debts or pretended satisfaction of her debt in genuine Philippine
obligations contracted in the currency of the Philippines, by money to the China Banking Corporation, that payment
means of the so-called Japanese "war notes" or "military was valid and that it entirely discharged her.
notes." Among other authorities which can be cited, Hall, The pertinent provisions of the Civil Code, as well as the
International Law, 7th edition, pages 498, 499, states the pertinent interpretative decisions of the Philippine and
well-known and salutary rule that: Spanish courts applying or construing the same, which
were in force at the time these pre-war contracts of
"* * * He (invader) is therefore forbidden as a general rule to vary or indebtedness were made by the alien banks and their pre-

war debtors became parts and parcel of those contracts. Now, what was the obligation of the contract between the
debtor and the creditor in the instant case? It was
"Unless a contract otherwise provides, the law applicable thereto at constituted not only by what they undertook and promised
the time of its making, including the law of the place where it is in their written agreement, particularly as regards the
entered into, and the law of the place where it is to be performed, as currency in which the debt was to be paid, but also by the
the case may be, is as much a part of the contract as though it were applicable legal provisions existing at the time of the
expressed or referred to therein, for it is presumed that the parties making of said agreement, and at the place of the making
had such a law in contemplation when the contract was made. So, thereof and where the payment of the debt was to be
when a statute prescribes a duty and a contract is made involving performed. The particular legal provisions so applicable
performance of that duty, such statute becomes a part of the have also been cited elsewhere in this opinion.
contract; or, where the law authorizes the regulation of service The case of Walker vs. Whitehead, 16 Wall. (U. S.), 314,
rendered the public, such law becomes a part of and controls 317; 21 Law. ed., 357, 358, and the case therein cited afford
contracts providing for the public service. Likewise, where a instances of impairment of the obligations of contracts
contract applicable herein. Said the court:
676 "As this court often has held, the laws in force at the time and place
of the making of a contract, and which affect its validity,
676 PHILIPPINE REPORTS ANNOTATED performance, and enforcement, enter into and form a part of it, as if
they were expressly referred to or incorporated in its terms. Von
Hoffman vs. Quincy, Wall., 535, 550; 18 Law. ed., 408, 409;
is made in contemplation of state law, or of a particular statute,
677
such law forms a part of the contract, whether or not incorporated
therein, and the contract will be construed in the light thereof.
Similarly, the parties to a contract made with reference to the laws VOL. 80, APRIL 9, 1948 677
of a jurisdiction other than that of the place of contracting are Haw Pia vs. China Banking Corporation
deemed to have incorporated into the contract the law of such
jurisdiction. However, it has been held that a contract cannot be Walker vs. Whitehead, 16 Wall., 314, 317; 21 Law. ed., 357, 358;
construed with reference to a foreign law, unless the intent of the Edwards vs. Kearzey, 96 U. S., 595, 601; 24 Law. ed., 793, 796.
parties to be governed by such law is evident from the instrument (Northern Pacific Railroad Co. vs. Wall., 241 U. S., 87; 60 Law. ed.,
itself without the aid of extrinsic evidence" (17 C. J. S. Contracts, 905, 907.)
section 330, pp. 782-784). "It is also settled that the laws which subsist at the time and
place of the making of a contract, and where it is to be performed,
The U. S. Supreme Court held in Northern Pacific Railway enter into and form a part of it, as if they were expressly referred to
Company vs. Wall., 241 U. S., 87; 60 Law. ed., 905, 907: or incorporated in its terms. This principle embraces alike those
which affect its validity, construction, discharge, and enforcement.
"As this court often has held, the laws in force at the time and place
Illustrations of this proposition are found, in the obligation of the
of the making of a contract, and which affect its validity,
debtor to pay interest after the maturity of the debt, where the
performance, and enforcement, enter into and form a part of it, as if
contract is silent; in the liability of the drawer of a protested bill to
they were expressly referred to or incorporated in its terms. Von
pay exchange and damages, and in the right of the drawer and
Hoffman vs. Quincy, 4 Wall., 535, 550; 18 Law. ed., 408, 409; Walker
indorser to require proof of demand and notice. These are as much
vs. Whitehead, 16 Wall., 314, 317; 21 Law. ed., 357, 358; Edwards
incidents and conditions of the contract as if they rested upon the
vs. Kearzey, 96 U. S., 595, 601; 24 Law. ed., 793, 796."
basis of a distinct agreement. Greem vs. Biddle, 8 Wheat., 92;

Bronsen vs. Kinzie, 1 How., 319; McCracken vs Hayward, 2 How., curiae DeWitt, Perkins and Ponce Enrile, pages 2-8).
612; People vs. Bon, 10 Cal., 570; Ogden vs. Saunders, 12 Wheat., And this is perfectly understandable, because in his
231." (Von Hoffman vs. Quincy, 4 Wall. [U. S.], 535, 550; 18 Law. proclamation of January 10, 1942 (I. O. J. Japanese
ed., 408, 409.) Military Administration, 3rd edition, page 38, and that of
"The laws which exist at the time and place of the making of a February 6, 1942, with its explanation, Ibid., pages 43-44).
contract, and where it is to be performed, enter into and form a part said commander allowed the use of both Japanese war
of it. This embraces alike those which affect its validity, notes and Philippine currency. Consequently, if the debtors
construction, discharge and enforcement. paid in military notes it was their voluntary choice.
"Nothing is more material to the obligation of a contract than the Perhaps it will be affirmed in their defense that Japanese
means of its enforcement. The ideas of validity and remedy are military notes were the only ones in circulation at the time.
inseparable, and both are parts of the obligation which is But the deadline set by Administrative Ordinance No. 11
guaranteed by the Constitution against impairment; for payments, that is, the due date fixed thereby, was
"The obligation of a contract 'is the law which binds the parties September 30, 1942, and according to the Ballantyne
to perform their agreement'; Schedule (the reliability of which Mr. Recto seems not to
"Any impairment of the obligation of a contract, the degree of question·page 33 of his printed counter-reply), in 194142,
impairment is immaterial, is within the prohibition of the the genuine Philippine currency was at par with the
Constitution; Japanese military notes. And if we were to be guided, as we
"The states may change the remedy; provided no substantial think we should be, by the well known rule of economics
right secured by the contract is impaired. Whenever such a result is that the cheaper money drives the more valuable from
produced by the act in question, to that extent it is void. The states circulation, during those two years when both moneys were
are no more permitted to impair the efficacy of a contract in this at par, they must have been considered equally valuable by
way than to attack its vitality in any other manner. Against all the public. And neither was to be expected to have been
assaults coming from that quarter, whatever guise they may driven by the other from circulation. And let it not be
assume, the contract is shielded by the Constitution. It must be left forgotten that when the Japanese occupation of Manila
with the same force and effect, including the substantial means of commenced, there were about P230,000,000, Philippine
enforcement which existed when it was made. The guaranty of the money, in circulation in the Philippines. according to the
Constitution gives it protection to that extent. Von Hoffman vs. 6th annual report of the High Commissioner to the
Quincy, 4 Wall., 535; 18 Law. ed., 403." (Walker vs. Whitehead, 16 Philippines to the President and Congress of the United
Wall., 314, 317; 21 Law. ed., 357, 358; italics supplied.) States, covering the fiscal period July 1, 1941-June 30,
1942. Said report says that only P7,474,000, or only 3.2
678
679

VOL. 80, APRIL 9, 1948 679
Administrative Ordinance No. 11 will be vainly scanned for
an order to pay in Japanese war-notes debts payable in per cent of that total was withdrawn from circulation.
Philippine currency to the banks therein mentioned under (Memorandum of amici curiae DeWitt, Perkins and Ponce
the prewar loans, overdrafts, etc. granted by them to their Enrile, page 64.) The trouble is that these pre-war debtors
prewar debtors. Such an order can not be found in any of did not pay on September 30, 1942, nor many months
the seven paragraphs of said ordinance (see memorandum thereafter, but only when the Japanese military notes
of amicus curiÕ Recto, pages 10-11; Memorandum of amici became increasingly depreciated and cheaper until finally

they became practically worthless. And did they pay at

those later dates in Japanese military notes because they all the former powerful war machine of Japan or of
were told by the Japanese military or civil authorities to Germany, none of these nations in the realm of law and
pay in that specific currency? No. But they perhaps will say justice could have pretended the right to wipe out such
that they did so because, again, the military notes were the contractual rights and obligations which might exist in
only ones to be had, and they were afraid that if they did territories which might happen to have been occupied by
not pay, any of the following consequences might befall their armies during the war. That by sheer military force
them: any of them could have physically forced the inhab itants of
such occupied territories to do acts in relation to their pre-
(1) That they might be punished with death (although existing contracts, is admitted; but that is in the realm of
Administrative Ordinance No. 11 contains no such physical force. This Court, however, is called upon here to
threat). adjudicate questions in the realm of law and justice·we
(2) That they might be tortured neither did the are here concerned not with the illnamed "right of force,"
ordinance contain this threat). but with the "force of right." ,
(3) that their mortgaged properties securing their Under a separate heading entitled "Equities of the
debts might be foreclosed upon (the ordinance did CaseQuestion of Conscience"·we shall discuss this aspect
contain this sanction). of the controversy.
The Legal Tender Cases cited on pages 84-87 of amicus
Not only by positive legal provisions but by the eternal curiae Recto's memorandum are not in point, for two
principles of natural justice and equity, in the absence of an reasons: (1) The American laws governing loans of money
express stipulation to the contrary, a debtor has the did not contain such specific provisions as articles 1753,
obligation to repay his debt in the same currency that he 1754, 1170 and allied articles of the Civil Code; and (2) the
borrowed. This is right, just, and fair for both parties·the American Congress had power to impair the obligation of
creditor will not be entitled to require payment in a more contracts. As to the first reason, on page 85 of said
valuable currency, while the debtor will not be allowed to memorandum, the following is quoted from the decision in
pay in a less valuable one. This certainly was the situation the Legal Tender Cases:
between Haw Pia and the China Banking Corporation
"* * * But whether the obligation of the contract is thereby
under their contract in question when the Japanese came.
weakened can be determined only after considering what was the
Did the Japanese occupant, even under his powers
contract obligation * * *." (Italics supplied.)
pursuant to international law, firstly as codified in the
Hague Regulations, and secondarily by the general usage of Unlike the American law there applied, the Philippine law
modern civilized nations existing at the time of the on the subject required the debtor under a loan of money
adoption of said Regulations, have the power to alter those "to return to the creditor an equal amount of the same kind
substantive rights and obligations of the parties? Most and quality" (article 1753, Civil Code), and as expressed by
assuredly not. With all the present and potential atomic Manresa (Vol. 11, 4th edition, page 543), in the quotation
strength of the United States, with all the great army of inserted on pages 36-37, supra.
Russia, with
"En su virtud, si se pacto la devolución en moneda de oro, así deberá
680 hacerse, sin que quepa, como decíamos al comentar el citado
artículo, pagar en plata, aungue sea abonando la diferencia del cam-
681

VOL. 80, APRIL 9, 1948 681 682

bio, porque ello equivaldría a autorizar una variación en la especie
pactada. * * *." (Italics supplied.) Haw Pia vs. China Banking Corporation
By analogy, if the contract stipulates for Philippine 24-25), added the figure for the China Banking
currency, no payment in Japanese military notes can Corporation, namely, P2,082,424.83. In said two letters the
legally be admitted, even paying the difference in the amici curiae explained how apparent withdrawals were
exchange rate. found to be involuntary and how certain sums had been
And as to the power of the American Congress to impair reinstated in favor of the depositors for that reason. The
the obligation of contracts, total of said voluntary withdrawals for the seven banks
then would be P4,010,366.05 and this amount deducted
"* * * Such constitutional provisions (against impairment of
from the P34,311,330.14 will leave a balance of
contractual obligations) are expressly directed at state action and
P30,800,964.09, which should be the amount of the net loss
operate to prevent impairment of a contract obligation by a state
to the alien banks if the so-called liquidation were to be
law; and they do not apply to or restrict congress or the United
held legal and valid. This last sum would be the amount
States, which may pass laws directly or indirectly impairing the
that said banks would be deprived of, and as to which their
obligation of contracts. * * *" (16 C. J. S., 694-695, and cases cited in
rights as private creditors would be totally annulled and
support.)
abrogated. After the occupation ended, consequent upon
3. Alleged liquidation, if allowed to produce its effects, the Japanese unconditional surrender, no sum of money on
tantamount to confiscation: account of the prewar loans was delivered to these banks,
We must remember that said liquidation involved either by the Bank of Taiwan or the Japanese Imperial
investments, by way of loans, by the alien banks to their Forces, or the Japanese Military Administration, which all
prewar debtors in the total amount of P34,311,330.14 disappeared f rom the scene in so f ar as the unfinished
(printed memorandum of amici curiae DeWitt, Perkins and pretended liquidation was concerned. If we are now to
Ponce Enrile, pages 4-5). This amount is not disputed by declare that as a legal consequence of that so-called
any party herein. As a result of the so-called liquidation, if liquidation these seven banks are no longer the creditors of
it were allowed to produce its effects, all this huge sum of their prewar debtors above referred to, that they have
money will be completely lost to said banks, excepting completely lost their contractual right to enforce payment
perhaps the relatively small sums which may result to be of their prewar credits although they have not received
represented by voluntary withdrawals of their prewar payment at least of the above balance of P30,300,964.09:
depositors during the occupation. Such withdrawals would then, the inevitable result would be that the so-called
be those which the depositors voluntarily made in Japanese liquidation was confisca-tion pure and simple, and what is
money, accepting the military notes at par with Philippine worse, this Court, by so deciding, will have played the
currency. As of the date of Mr. DeWitt's letter to the ignominious role of bringing about the consummation of
Committee on War Claims, Congress of the Philippines, what the Japanese oppressor so unlawfully and
dated September 5, 1946 (Memorandum of amici curiae iniquitously commenced and was in process of executing
DeWitt, Perkins and Ponce Enrile, pages 22-23), the when his defeat overtook him. This Court in Peralta vs.
amount of those withdrawals was P1,927,841.22 for six of Director of Prisons, 42 Off. Gaz., 198, 212, 213, quoted from
the seven banks, and his supplemental letter to the same Westlake International Law, Part II, War, pages 97-98, the
committee of September 6, 1946 (same memorandum pages following passage:

"* * * The enemy's law depends on him for enforcement as well as unless absolutely prevented. The principle of the
for enactment. The invaded state is not subject to the indignity of inviolability of private contracts was not only found by said
being obliged to execute his commands." army enshrined in the Philippine constitution, but must
have been already a part of the juridical ideology of the
683 Japanese government itself, since said government ap-
684
VOL. 80, APRIL 9, 1948 683
On page 194 of his memorandum, amicus curiÕ Recto Haw Pia vs. China Banking Corporation
submits the proposition that sequestration is not
confiscation and cites Hyde as his authority. However, it proved the constitution of the puppet Republic which
will be seen that Hyde speaks of sequestration within the likewise embodied the same principle. The Japanese army,
belligerent's own national domain, and not within enemy therefore, should be deemed to have brought that same
territory occupied by him in the course of the war. As principle when invading this country. But the most
already pointed out elsewhere in this opinion, the Hague important thing is that, being enjoined to respect that
Regulations do not deal with the powers of the belligerent particular provision of the local municipal law, because not
within his own domain in the matter of control of enemy absolutely prevented, it was naturally prohibited from
property, so that Mr. Hyde's treatment of the subject relied doing precisely the thing that was forbidden by it. The
upon by the amicus curiae has nothing to do with the substantive rights and obligations of the alien banks which
different subject of the power of control of enemy property the Taiwan Bank attempted to liquidate and those of their
in occupied territory. prewar debtors, we have sufficiently -discussed above. We
Furthermore, even sequestration of cash, funds, and have cited articles 1753, 1754, first paragraph, and 1170 of
realizable securities in occupied territory is proscribed by the Civil Code. We have quoted the judgment of the
article 53 of the Hague Regulations. The municipal laws of Supreme 'Court of Spain of November 23, 1946. We have
the Philippines which at the time of the commencement of already quoted on pages 36-37 of this opinion from the
the Japanese occupation included, by virtue of our eminent Manresa under the heading "Préstamos en dinero"
constitution, the generally accepted principles of (Vol. 11, 4th ed., 543). All the above legal provisions were in
international law, among them the same article 53 of the force at the time and place of the making of the contracts
aforesaid Regulations, unquestionably prohibited such by the said banks and their prewar debtors. Those legal
taking possession of the cash, funds, and realizable provisions, therefore, became parts and parcel of the same
securities of the 'banks in question as was done under contracts. And even the proclamation of the Japanese
Administrative Order No. 11. This particular provision of Commander in Chief of January 3, 1942 (I. O. J, Japanese
the local municipal law the Japanese Army was certainly Military Adm., 3rd ed., pp. 1-2) expressly guaranteed that
not absolutely prevented from respecting, as enjoined by "So far as the Military Administration permits, all the laws
article 43 of the Regulations. now in force in the Commonwealth * * * shall continue to
4. Japanese occupation army had no power to impair the be effective for the time being as in the past." No order,
obligation of prewar contracts between the inhabitants of proclamation, or decree of that military administration, or
the Philippines·certainly it had no military necessity to do of the Commander in Chief, or any other officer of the
so. Japanese Army has been brought to our attention, and
As just reiterated, that army was bound by the Hague none can be found in all the volumes of the Official Journal
Regulations to respect the municipal laws of these Islands of said Administration, that discontinued these particular

provisions of our civil law and constitution. Certainly, no already contracted for, and entailing as it must, damage
military reason or exigency could have required such a and prejudice to the contracting parties, is against the
determination. dictates of public conscience within the meaning of the
We have already quoted from Walker vs. Whitehead, preamble to the Hague Regulations. The ordinary man in
supra (pp. 42-43 of this opinion). But in this connection the street will so say because he feels that what had been
would repeat the following passages therefrom upon the agreed upon between honest men binds them in good faith
particular subject of impairment of contractual obligations : and in conscience to its fulfillment. True it is, that
dishonest men abound in the world, but when the preamble
685
speaks of "the public conscience" it refers to those who are
honest, and who are presumed to constitute the majority. A
VOL. 80, APRIL 9, 1948 685 more wise rule of conduct can hardly be
"Nothing is more material to the obligation of a contract than the

means of its enforcement. The ideas of validity and remedy are
inseparable, and both are parts of the obligation which is Haw Pia vs. China Banking Corporation
guaranteed by the constitution against impairment;
"The obligation of a contract 'is the law which binds the parties enunciated. This court must not be the last to uphold and
to perform their agreement'; enforce it.
"Any impairment of the obligation of a contract, the degree of 5. Japanese military notes not legal tender, Hence, their
impairment is immaterial, is within the prohibition of the receipt was not compulsory, and any forced payment
constitution." therewith was null and void.
In Juilliard vs. Greenman, 28 Law. ed. (U. S.), 204, 214,
And if we force the creditor, who has loaned good the United States Supreme Court held:
Philippine money, to receive in payment depreciated or
worthless Japanese military notes, are we not changing "It appears to us to follow, as a logical and necessary consequence,
"the means of enforcement" of his contract? What is the that Congress has the power to issue the obligations of the United
enforcement of a contract of loan if it is not the collection of States in such form, and to impress upon them such qualities as
what has been loaned? currency for the purchase of merchandise and the payment of debts,
In Hepburn vs. Griswald, 8 Wall. (U. S.), 603; 19 Law. as accord with usage of sovereign governments. The power, as
ed., 513, 521, the United States Supreme Court held: incident to the power of borrowing money and issuing bills or notes
of the government for money borrowed, of impressing upon those
"Now, it certainly needs no argument to prove that an Act, bills or notes the quality of being a legal tender for the payment of
compelling acceptance in satisfaction of anything other than the private debts, was a power universally understood to belong to
stipulated payment, alters arbitrarily the terms of the contract and sovereignty in Europe and America, at the time of the framing and
impairs its obligation, and that the extent of impairment is in the adoption of the Constitution of the United States. The governments
proportion of the inequality of the payment accepted under the of Europe, acting through the monarch or the Legislature, according
constraint of the law to the payment due under the contract. Nor to the distribution of powers under their respective constitutions,
does it need argument to prove that the practical operation of such had and have as sovereign a power of issuing paper money as of
an act is contrary to justice and equity. * * *" stamping coin. This power has been distinctly recognized in an
important modern case, ably argued and fully considered in which
Lastly, the impairment of the obligation of contracts
Emperor of Austria, as King of Hungary, obtained f rom the English
involving, as it does, property rights and obligations
Court of Chancery an injunction against the issue in England, portion thereof. Currency or money should not be confused
without his license, of notes purporting to be public paper money of with legal tender. There may be currency or money in
Hungary, Austria -us. Day, 2 Giff., 628, and 3 de G. F. & J. 217. * * circulation, or allowed to circulate, which is not legal
*." (Italics supplied.) tender, because the sovereign has not decreed that they be
received as such, in payment of public or private debts. Not
Thus we see that both in Europe and America the power to even the allied military currency which was used in Sicily
impress the character of legal tender upon bills or notes is was made legal tender, presumably because the allies
universally understood to belong to sovereignty, respected the principle that only the sovereign can
In Laurel vs. Misa, supra, it has been definitely settled establish a legal tender, and acknowledged that they were
that there was no transfer of sovereignty to the Empire of not the sovereign even while occupying Sicily. In a case
Japan or to her Imperial Forces over the areas of the where the court is so sharply divided, before we decide to
Philippines occupied by them during the late war. And this declare the notorious Japanese military notes legal tender
is in consonanee with the enlightened doctrine of modern during the occupation, we must warn ourselves of the far-
international law. (See also 36 Am. Jur., 468.) And this is as reaching consequences to be expected. To mention just one
it should be. For the idea of legal tender is inseparable with instance, there is the Philippine National Bank fully 90 per
that of money, and money is a standard of value by which cent of whose prewar investments, according to reliable
all other values are measured. The adop- information, were paid with those military notes during the
687
occupation, and they total hundreds of millions of pesos,
according to that information. Besides, what shall we say of
the hundreds
VOL. 80, APRIL 9, 1948 687
688
tion of such a standard, and the provision of what may 688 PHILIPPINE REPORTS ANNOTATED
stand for it as legal tender, whether coin or paper money, Haw Pia vs. China Banking Corporation
are aimed at that uniformity in the unit of value which is
demanded by all sound economy. In their very nature these of millions of pesos in the same war notes deposited with,
things require the characteristics of permanence and the same bank during the occupation? If we declare these
universality. Without these they would only create notes legal tender, what will happen to our national bank?
confusion and chaos in the country's business. To speak of And what will happen to the economic life of this ravaged
legal tender not f or all the Philippines but only f or country? If this bank were to lose 90 per cent of its pre-war
specified and isolated parts thereof during the Japanese investments, totalling hundreds of millions of pesos, and to
occupation, is to incur in a contradiction in terms. The pay in good sound Philippine money other hundreds of
merely provisional government established by an millions of pesos of deposits made in that Japanese
occupation commander during the course of war should military currency, it will be instantly plunged into utter
have nothing to do with establishing such standards for the ruin and bankruptcy and still leave an enormous amount of
economy of the country, particularly when his occupation is unpaid obligations after its total destruction.
not extended over its entire territory, and his authority is In this connection, the writer would propose that we
not effectively exercised over all its people, but is confined take the precautionary step of requiring definite
to certain definite areas, more or less isolated, because of information from the bank itself. Under Rule 123, section
the geographical conditions of the archipelago and because 5, we have judicial notice, among other matters, of those
of the continued resistance of the inhabitants of the major which "are capable of unquestionable demonstration." The

amount paid to the bank in Japanese military notes during "The Japanese Government-Ten Pesos" (or any other denomination
the Japanese occupation to satisfy prewar debts is capable in pesos or centavos) (A sample of the 10-peso military notes is
of unquestionable demonstration because it appears in the annexed to the original of this opinion for ready reference).
books of the bank. Hence, we can take judicial notice
thereof, and in accordance with the same rule and section, I take it that no member of this Court would for a moment
we may receive evidence upon the same subject when we consider as legal tender, in the legitimate sense of the term
shall find it necessary for our own information, and we may ·the only sense we should be interested in·a paper
resort for our aid to the books or documents of the bank, in money not bearing either: (a) a certification by the
which connection it is believed that the court would be government that there has been deposited in the treasury
satisfied with a mere certification from the proper bank the amount therein stated payable to the bearer on demand
official as to the total of such payments. In this way, if we in the money also therein stated; or (b) an absolute and
must declare those military notes legal tender and thus unconditional promise of the government to pay to the
bring about the complete ruin and destruction of the chief bearer on demand the amount therein stated. Thus the
local banking agency for the economic rehabilitation of our majority opinion quotes (p. 25) from the Japanese
people, the official depository of our government's funds, Commander in Chief's proclamations of January 3 and
and the majority of whose capital and assets belong to our February 1 (6), 1942, as follows:
government, let us do it with full knowledge of the facts. If "* * * Naturally, as the Japanese war notes were issued as legal
we must expose ourselves to the grave danger of going
tender for payment of all kinds at par with the Philippine peso, by
down in history as the authors of such a tremendous the Imperial Japanese Government, which in its proclamation of
collapse in the economic life of our people just as they were January 3, 1942, and February 1 (6), 1942, 'takes full responsibility
struggling to rise from their for their usage having the correct amount to back them up' * * *."
689
Now, it is apparent.that, whether the words and figures
thus printed on those notes be interpreted as a promise of
VOL. 80, APRIL 9, 1948 689 the Japanese government to pay the stated amount to
financial prostration consequent upon the war; if we must

face the accusing fingers of posterity in this regard, let us 690 PHILIPPINE REPORTS ANNOTATED
not place ourselves in the necessity of having to answer: Haw Pia vs. China Banking Corporation
"We did not know it was going to entail that result."
Upon their very face those Japanese military notes could the holder on demand, or as a guarantee that said amount
not possibly be considered as legal tender. It is of general was in deposit in the treasury of Japan, such promise was
knowledge, and therefore within judicial notice, that all an absolutely hollow undertaking, impossible of
that appeared in those notes which might possibly be performance and such guarantee equally futile and
interpreted as a promise of the Japanese government to meaningless, impossible of effectuation. The reason is the
pay the face value thereof in the currency therein stated to simple fact that the Japanese government did not have
the holder upon demand, or as a guarantee that the pesos but yen, nor was the peso currency in deposit in its
equivalent amount has been deposited in the treasury of treasury. It is, therefore, self-evident that when the
the Japanese government in the same currency, were Japanese government, as the Japanese authorities in the
couched in the following words and figures: Philippines would have us accept, promised or guaranteed
the payment to the bearer on demand of the amounts
represented by those military notes in pesos, it promised or preposterous. Or will it be pretended that since the
guaranteed something which it could not f ulfill, unless Japanese government did not possess the peso currency in
again we are to abuse our imagination and say that what which it thus promised or guaranteed payment, the poor
was meant was that the promise or the guarantee was to be creditor who was forced to accept war notes, at par with
good only if and when the Japanese government should genuine Philippine currency, in complete satisfaction of a
confiscate, or succeed in confiscating, the Philippine pesos, prewar credit, would have to, even in case Japan had won
or if and when the Japanese government should succeed in the war, ask that government for a settlement by which the
somehow obtaining such pesos to redeem or pay its war face value in pesos of his war notes might be reduce to
notes. This should be more than the Filipino people can be Japanese yen? In the first place, this is altogether beyond
made to swallow. Let us not exact so much naivete from the terms printed in the military notes themselves, and
them. they did not contain anything that would include such a
In the very nature of things, the concept of legal tender supposition within their purview. In the second place, a
implies good f aith besides legal authority, but when a paper money whose redemption is thus made so precarious,
whole people is made to accept as legal tender a paper doubtful and conditional, is just the antithesis of legal
"currency" which is impossible of redemption by the issuing tender; for legal tender does not become so by the mere
government, let not this Highest Tribunal of the land be order of a military occupant, however absolute and
the instrument for forcing them to submit to such a regime. compelling that order may be in the military sense. The
Even in the Legal Tender Cases (12 Wall., 457; 20 Law, ed., term "legal" in the name "legal tender" means just what it
287, 313), it was confessed by the Supreme Court of the says, and legality is never predicated upon sheer military
United States that it was not there intended to assert that or physical compulsion. Just imagine the injustice of it: the
Congress might make anything which has no value· pre-war creditor whom his pre-war debtor owed good
money. Said the Court: Philippine money, is made to accept Japanese war notes, at
par with the Philippine Peso, and is placed in the situation
"* * * nor do we assert that Congress may make anything which has of not being able to have said notes redeemed because the
no value-money. What we do assert is that Congress has power to Japanese government does not have the money which it
enact that the government's promises to pay money shall be for the therein promised or guaranteed to pay. In practical
time being equivalent in value to the representative of value illustration, let us consider the case of any present holder
determined by the coinage acts or to multiples thereof * * *." (Italics of such war notes. If he went to Japan now and presented
supplied.) those notes for redemption to the Japanese Government,
what would he find? No pesos but at most yen in the
691
treasury of the Japanese government. But the yen is not
VOL. 80, APRIL 9, 1948 691 692

But how can a government's promise to pay money, which Haw Pia vs. China Banking Corporation
is impossible of fulfillment, have any value at all? Mark
that the promise was made in terms of Pesos or Centavos the money or currency the payment of which is promised or
(depending on the denomination), which money the guaranteed in the war notes that he presents. If he
Japanese government did and does not have. It is at times happens to be prewar creditor for, say P10,000, in genuine
said, more or less loosely, that those war notes were Philippine money, and has been forced to receive the war
intended to be redeemed in case Japan won the war. This is notes in the same face value and at par with his credit, if

the war notes were considered legal tender, he has already and.the general doctrine of legal tender, as stated by Mr.
lost all right to collect the original credit from his debtor. Westerfield, to cite just one writer on the subject, the right
But the tragedy does not end here; for he can not possibly to demand payment in that currency.
collect the equivalent amount in pesos from the Japanese And yet, it is submitted that for the majority in this case
government which, we are told, had the necessary amount there is no dodging the question,' there is no possibility of
to back up the war notes. The situation of such a creditor avoiding the grave decision of the question whether those
could not have been a whit better had he gone to Japan war notes were legal tender or not. For if they were, then
immediately upon receiving the war notes during the their receipt was compulsory, saving an express contractual
occupation, to seek the redemption thereof, for the stipulation to the contrary (Rev. Adm. Code, sec. 1612; 40
Japanese government possessed no more pesos then than C. J., p. 1490, sec. 2; Morris vs. Edwards, 1 Oh., 189, 204),
now. but if they were not, no prewar creditor would legitimately
Are we going to further strain the predicament of this be compellable to receive them in payment, any such
unfortunate creditor by holding that he can present and payment forced by the enemy's pressure and duress, would
maintain a claim, diplomatic, administrative, or judicial, necessarily be null and void. (Civil Code, arts. 1265, 1267,
against the Japanese government upon its supposed 1268.) If they were legal tender, the hundreds of millions of
promise or guarantee made in those military notes? And in pesos in Japanese military notes deposited during the
the same breath tell him that those notes were legal occupation in the Philippine National Bank, for instance,
tender? would be valid and would now be payable in genuine money
At any rate, laws providing what shall be legal tender of this country. Then will that bank, and others similarly
invariably make an exception of specific contractual situated, be hurled into utter bankruptcy and ruin. In a
provisions to the contrary. Thus section 1612 of our Revised case, which at best is doubtful, I decline to be among the
Administrative Code, in providing that the Philippine authors of such an economic catastrophe.
silver peso and half peso, and gold coins of the United 6. Allies, including the Commonwealth of the
States, at the rate of one dollar for two pesos, shall be legal Philippines, through their political departments reserved
tender, makes the f ollowing express exception: the right to assert nullity of illegal acts of Axis occupant
·court bound to respect and enforce their declarations.
"unless otherwise specifically provided by contract." On July 10-12, 1943, an International Law Conference
was held in London in which some of the most prominent
Westerfield on Money, Credit, and Banking, page 15, has
international law jurists of today with experience in two
the following to say on the point:
world wars participated. They issued certain declarations
"* * * A legal tender law * * * does not prevent contracting parties, and passed certain' resolutions. Among their declarations
unless specifically inhibited by law, from naming the specific money which are pertinent here, because what applies to the
in which payment is to be made * * *." Germans equally applies to the Japanese, were the
following:
If the creditor in our example contracted with his debtor for
the payment of the debt in Philippine currency, he had "Nothing has been more devastating to the National economy of
under section 1612 of the Revised Administrative Code occupied countries than this form of looting to which not even the
faintest allusion is made in the Regulations, it being a new device
693 entirely out of keeping with the assumptions of the basis of that
694
VOL. 80, APRIL 9, 1948 693

Haw Pia China Banking Corporation sovereign is restored." ,

"(iii) The rights of the occupant do not include any right
document. The inflationary measures serve at the time the to dispose of property, rights or interests for
coördination of the monetary system of the occupied country with purposes other than the maintenance of public
that of Germany (already heavily inflated) and the exploitation for order and safety in the occupied territory. In
the benefit of central Reich authorities of the available resources of particular the occupant is not in international law
the occupied territories; they enter thus into a system of policy and vested with any power to transfer a title which will
government which is on another plane altogether than that of, be valid outside that territory, to any property,
belligerent occupation. Under the Hague Convention IV, rights or interests which he purports to acquired or
belligerents who transgress the regulations have to pay damages; create or dispose of; this applies whether such
but the very subtlety of the destruction, thus wrought is such as to property,
def y ordinary attempts at assessing damages, altogether apart
from the fact that no payment of money damages can repair the 695
social and national damage suffered. The bank notes themselves
which were carried to a third country during the occupation and are
VOL. 80, APRIL 9, 1948 695
still located in a third country at the end of the occupation are in
such a case invalid intrinsically or may be declared so 'as it was Haw Pia vs. China Banking Corporation
beyond the powers of the occupant to create the inflation either
directly or by means of the occupant controlled bank of issue." rights, or interests are those of the State or of
(Italics supplied.) private persons or bodies. This status of the
"The vice of invalidity or nullity flows from an excess of powers or occupant is not changed by the fact that he annexes
usurpation of power by the occupant. The occupant has, under by unilateral action the territory occupied by him.
international law, only a limited right of jurisdiction and "(iv) The civil administration established in a country
administration. He has no right to dispose of goods or 'services subject to belligerent occupation has no status in
acquired from the inhabitants for purposes other than the international law. Any rule of international law
maintenance of the necessary forces of occupation and the welfare establishing the invalidity of transfers of, or
of the inhabitants, and he has no right to transfer titles to property, dealings with, property, rights or interests effected
rights or interests outside the country. This applies in principle also by the occupant, applies also to similar transfers
to State property. Excess of powers or usurpation of power by .the and dealings carried out by any associate or agent
occupant may be expressed in the acts of the occupant himself or of of the occupant acting for him or in his interests."
his agents or helpers or abetters, whether these agents or helpers or
"(vi) Without prejudice to the foregoing rules, rightful
abetters be persons of his own nationality, nationals or inhabitants
ownership remains in the person who has been
of the occupied country or any other persons."
dispossessed of anything by outright confiscation or
Among their resolutions were the following: by any device resulting from political pressure by the
occupant; the title of a party in a third country
"(ii) The occupant does not succeed, even provisionally, derived from the occupant or from his associates or
to the status or rights of the sovereign whom he agents is invalid." (Italics supplied.)
displaces. The occupant has at most, under
international law, only limited rights of jurisdiction The full text of that inter-allied declaration with a prefixed
and administration; acts in excess of these limited statement of the government of the United Kingdom
rights are null and void in law and are not entitled follows:
recognition in the occupied country after its true

"London, January 5th, 1943. outrages against persons in the occupied territories. Accordingly
"His Majesty's Government in the United Kindom have today they have made the followmg joint Declaration, and issued the
joined with sixteen other Governments of the United Nations, and appended explanatory memorandum on its meaning, scope and
with the French National Committee in making a formal application:
declaration of their determination to combat and defeat the
plundering by the enemy Powers of the territories which have been "DECLARATION
over-run or brought under enemy control. The systematic spoliation
"The Governments of the Union of South Africa, the United
of occupied or controlled territory has followed immediately upon
States of America, Australia, Belgium, Canada, China, the
each fresh aggression. This has taken every sort of form, from open
Czechoslavak Republic, the United Kingdom of Great Britain and
looting to the most cunningly camouflaged financial penetration,
Northern Ireland, the Union of Soviet Socialist Republics, Greece,
and has extended to every sort of property·from work of art to
India, Luxemburg, the Netherlands, New Zealand, Norway, Poland,
stock of commodities, from bullion and bank notes to stocks and
Yugoslavia and the French National Committee,
shares in business and financial undertakings. But the object is
"Hereby issue a formal warning to all concerned, and in
always the same·to seize everything of value that can be put to the
particular to persons in neutral countries, that they intend to do
aggressor's profit and then to bring the whole economy of the
their utmost to defeat the methods of dispossession practiced by the
subjugated countries under control so that they must enslave to
governments with which they are at war against the countries and
enrich and strengthen their oppressors.
peoples who have been so wantonly assaulted and dispoiled.
"It has always been foreseen that when the tide of battle began
"Accordingly the governments making this declaration and the
to turn against the Axis the campaign of plunder would be even
French National Committee reserve all their rights to declare
further extended and accelerated and that every effort would be
invalid any transfers of, or dealings with, property, rights and
made to stow away the stolen property in neutral countries and to
interests of any description whatsoever, which are, or have been
persuade neutral citizens to act as fences or cloaks on behalf of the
situated in the territories which have come under the occupation or
thieves.
control, direct or indirect, of the governments with which they are at
"There is evidence that this is now happening, under the
war or which belong or have belonged, to persons including juridical
pressure of events in Russia and North Africa, and that the ruthless
persons residing in such territories. This warning applies whether
and complete methods of plunder begun in Central Europe are now
such transfers or dealings have taken the form of open looting or
696
plunder, or of transaction apparently legal in form, even when they
purport to be voluntarily effected.
"The governments making this declaration and the French
National Committee solemnly record their solidarity in this matter."
Now, Martin Domke, in his work entitled "Trading with the
being extended on a vast and ever-increasing scale in the occupied Enemy in World War II" says that "this warning was
territories of Western Europe. (All this language is applicable to the indorsed by the Commonwealth of the Philippines, in order
Japanese methods throughout the Far Eastern Territories they to strengthen further Filipino resistance to Japanese
occupied.) occupation." In this connection, it has been asserted for
"His Majesty's Government agrees with the Allied Governments
697
and the French National Committee that it is important to leave no
doubt whatsoever of their resolution. not to accept or tolerate the
misdeeds of their enemies in the field of property, however these VOL. 80, APRIL 9, 1948 697
may be cloaked, just as they have recently emphasized their Haw Pia vs. China Banking Corporation
determination to exact retribution from war criminals for their

the debtors of the alien banks that the so-called liquidation Haw Pia vs. China Banking Corporation
was impelled by the military necessity of weakening our
resistance to the invader. By the same token, the action of or plunder, or of transactions apparently legal in form, even
President Quezon, as head of the Commonwealth when they purport to be voluntarily effected."
Government, in endorsing and joining the London There can be no doubt that the pretended liquidation of
Declaration, was impelled by the no less pressing military the above mentioned alien banks under Administrative
necessity·which to us should be of overpowering force·to Ordinance No. 11 by the Taiwan Bank, as an agency of the
further strengthen that resistance. Now at this sovereign Japanese Army, or Military Administration, comes
though young Republic is free, is its Highest Court going to squarely under the condemnation of the above quoted
give more effect to the decree of our former oppressor than London Declaration, and, therefore, the condemnation of
to that of our own lawful Government·to obey the former the political department of our own government then in
and disobey the latter? exile in Washington. Will this Court go against that
In Philipps vs. Payne, 2 Otto (U.S.), 130; 23 Law. ed., declaration? Have we the right to declare that President
649, the Supreme Court of the United States expressly Quezon, as head of the political department of our
acknowledged that "in cases involving the action of the government, did not have the power to bind us in this
political departments of the government the judiciary is matter of the peculiar province of his department? Is the
bound by such action." (See also Williams vs. Insurance Co., judiciary, through its highest court, going to break one of
13 Pet., 420; Garcia vs. Lee, 12 Pet., 511; Kennel vs. the most fundamental and best settled principles of
Chambers, 14 How., 38; Foster vs. Neilson, 2 Pet., 209; republican government, and overthrow and nullify this
Nabod of Carnatio vs. East Ind. Co. Ves. Jr. 60; Lucer vs. most solemn decision of another coordinate branch. upon a
Barbon, 7 How., 1; R. I. vs. Mass., 12 Pet, 714.) matter within its legitimate sphere? Shall we say that the
In accordance with the foregoing doctrine this Court is Japanese were right, and President Quezon was wrong?
bound by the determination of the political department of And be it not forgotten that if this Court should so resolve,
the Commonwealth Government, through President it would in effect be taking such an unprecedented course
Quezon and his exile cabinet, in adhering to the London in an effort to uphold the validity of one of the most
Declaration, and to enforce what was there announced in iniquitous acts of the worst despot that ever swayed this
respect to declaring invalid, among other things, any innocent country.
dealings by the governments with which the Allies were at 7. The acts of the Japanese military and civil authorities
war with "property rights and interests of any description in the issue of their military notes, and the pretended
whatsoever which are, or have been situated in the liquidation of said alien banks were of political complexion.
territories which have come under the occupation or control, In Peralta vs. Director of Prisons, 42 Official Gazette,
direct or indirect, of said governments or which belong or 198, 210-211, this Court held that the crimes penalized by
have belonged, to persons, including juridical persons, Act No. 65 (of the occupation regime), those penalized by
residing in such territories." (Italics supplied.) This Court Ordinance No. 7 (of the same regime), and certain other
is bound by the determination of said political department offenses therein specified, "are all of a political complexion,
of our government announced in the same declaration that because the acts constituting those offenses were punished,
the warning therein contained "applies whether such as are all political offenses, for public rather than private
transfers or dealings have taken the form of open looting reasons, and were acts in aid or favor of the enemy and
directed against the welfare, safety and security of the
698
belligerent occupant."
698 PHILIPPINE REPORTS ANNOTATED 699

VOL. 80, APRIL 9, 1948 699 "Thus judicial acts done under his control, when they are not of a
political complexion, administrative acts so done, to the extent that
they take effect during the continuance of his control, and the
The reason and purpose which motivated the issue of those 700
military notes are declared by the Commander in Chief of
the Imperial Japanese Forces in his proclamation of
January 3, 1942, supra, thus:
"The Imperial Japanese Army, in the occupied areas, will use the
war-notes (military pass-money) endorsed and issued by the various acts done during the same time by private persons under
Imperial Japanese Government. * * *" the sanction of municipal law, remain good. * * * Political acts on
the other hand fall through as of course, whether they introduce any
That reason and that purpose were public, par excellence, positive change into the organization of the country, or whether
in character, for the support, welfare and security of said they only suspend the working of that already in existence * a *."
army was the public interest and concern of the Japanese (Hall, International Law, 6th ed., p. 483, italics supplied.)
Empire. The military notes were not issued for the private
benefit of the persons serving as officers and men in that 8. The pretended liquidation, not having been terminated,
army. even hypothetically supposing that it would have been
The majority opinion in the same Peralta case proceeds otherwise valid, fell short of being validly consummated.
to declare (p. 213) : and became impossible of consummation.
By its very nature, such a liquidation is not
"We have already held in our recent decision in the case of Co Kim
accomplished, does not become a fact, until the end of the
Cham vs. Valdez Tan Keh, supra, that all judgments of political
process is reached·until the net result is determined in the
complexion of the courts during the Japanese regime, ceased to be
final balance, either in favor of or against the banks. Before
valid upon the reoccupation of the Islands by virtue of the principle
this net result, this final balance, could be reached, it is
or right of postliminium. Applying that doctrine to the present case,
plain that all the credits of the banks be fully paid to, and
the sentence which convicted the petitioner of a crime of a political
all their obligations fully satisfied by, the liquidator. In
complexion must be considered as having ceased to be valid ipso
regard to the payment of those credits, the Civil Code
facto upon the reoccupation or liberation of the Philippines by
provides:
General Douglas MacArthur."
"ART. 1169. Unless the contract expressly authorizes it the creditor
As a consequence, the punitive sentence imposed upon cannot be compelled to accept partial perf ormances of the
Peralta by the occupation court was held to have "ceased to undertaking of which the obligation consists.
be good and valid ipso facto upon the reoccupation of these
Islands and the restoration therein of the Commonwealth "* * * * * * *"
Government."
By the same token, that proclamation of January 3, Without the consent of the alien banks here spoken of,
1942, of the Japanese Commander in Chief, Administrative therefore·and that consent was never given·no partial
Ordinance No. 11, and the so-called liquidation attempted payment, even in genuine Philippine money, could be
thereunder, being all of a political complexion, even to a validly applied to them by the pretended liquidator. Now, if
superior degree, did not remain good, but automatically those Japanese military notes were not legal tender, no one
"fell through as of course," as stated by Hall: seems to deny that said notes, at least from January, 1943,
to January, 1945, were increasingly lower in value than the

lawful money of the Philippines: it resulting that, through," came to nothing, upon the cessation of the
computed under the Ballantyne schedule, by January, occupation. Indeed, we cannot for a moment think of the
1945, the face value of P34,311,330.14 of the military notes Supreme Court of this Republic executing a command of
paid to the Taiwan Bank, was only equivalent to the Japanese occupant.
P16,119,305.78 in Philippine currency. (Amici curiae
DeWitt, Perkins & Ponce Enrile's printed memorandum, "* * * The enemy's law depends on him for enforcement as well as
page 5.) In other words, in terms of Philippine currency, for enactment. The invaded state is not subject to the indignity of
less than half of the total credits was paid, even giving the being obliged to execute his commands." (Westlake International
military notes Law, Part II, War, pp. 97-98, quoted in majority opinion in Peralta
vs. Director of Prisons, 42 Off. Gaz., 198, 212-213; italics supplied.)
701
Any attempt now to continue and finish that pretended
liquidation will meet these insuperable obstacles: (1) Ad-
VOL. 80, APRIL 9, 1948 701
702
the Ballantyne schedule values in the respective years. 702 PHILIPPINE REPORTS ANNOTATED
This would be at best a partial payment which the creditor Haw Pia, vs. China Banking Corporation
banks would at any rate not be compellable to receive,
pursuant to article 1169 of the Civil Code, for certainly
ministrative Ordinance No. 11 is no more; (2) at any rate
there was no stipulation in their contracts authorizing the
this country "is not subject to the indignity of being obliged
debtors to pay in Japanese military notes, and for these to
to execute" it; (3) collection of the prewar credits in
be computed in terms of Philippine money under a
question is forbidden by our moratorium law; and (4) we
schedule still undevised, and even unforeseen, when said
cannot credit the debtors for their payments in military
contracts were made.
notes under said ordinance without giving effect to and
But this is not all; in the instant case Haw Pia's own
carrying out, even now that we are free from enemy
counsel in the lower court stated at the hearing that his
occupation and control, such political acts of said enemy as
client twice demanded from the Taiwan Bank the release of
the proclamation for the issue of the military notes for use
the mortgage, but the said bank refused it in both
of the army "in the occupied areas," and the said ordinance.
instances (t. s. n. 5). On pages 7-8 of the same transcript
9. Consequences of occupant's illegal acts·postliminium
said counsel admitted that the Bank of Taiwan took
·
possession of the China Banking Corporation and became
liquidator without the consent of the latter bank, which "SEC. 283. If the occupant has performed acts which, according to
was only forced by the Japanese Military Forces. Nobody International Law, he was not competent to perform, postliminium
pretends now that the so-called liquidation reached the net makes the invalidity of these illegitimate acts apparent. Therefore, if
result, the final balance. And we all seem to agree that the the occupant has sold immovable State property, such property may
banks have not received any amount from the "liquidator." afterwards be claimed from the purchaser, whoever he is, without
Neither is it asserted that they were ever notified by it of compensation. If he has appointed individuals to offices for terms
any debit balance against them. outlasting the occupation, they may afterwards be dismissed. If he
An unfinished liquidation is no liquidation at all. Are we has appropriated and sold such private or public property as may
to take over where the Japanese left off in the execution of not legitimately be appropriated by a military occupant, it may
Administrative Ordinance No. 11 ? How are we to do it? afterwards be claimed from the purchaser without payment of
Being of a political complexion, that ordinance "fell compensation." (II Oppenheim International Law, 6th Rev. ed., p.

483; italics supplied.) If the Taiwan Bank was not authorized to receive the
payment in the name of the alien banks, it was void, and it
If the Japanese occupant, therefore, had no power to would have been void even if payment had been made with
liquidate the alien banks under consideration, Philippine money.
postliminium would make the invalidity of that act But in behalf of Haw Pia article 1164 of the Civil Code is
"apparent." Paraphrasing the above quotation, if said invoked. It stipulates:
occupant was without legal authority to liquidate said
"enemy banks," or has illegally collected or received "ART. 1164. A payment made in good faith to the person in
payments in military notes of prewar loans in genuine possession of the credit shall release the debtor."
Philippine money, such payments can be declared null and
void at the instance of the legitimate creditors, "without At the same time, also in her behalf, the following is quoted
payment of compensation" which, in this case, means (amicus curiae's memorandum page 60) from the pertinent
"without crediting any amount" to the payors of the commentaries of Manresa:
military notes. "Partiendo de esas bases y de que la buena fé se presume siempre,
"The most important principle of law incident to belligerent serán obstáculos que impedirán tal presunción los que demuestran
occupation·one that was not established until the last century·is el conocimiento por el deudor de los vicios de la posesión, y aun
that occupation does not displace or transfer sovereignty. * * * cuando su buena fé no pueda contradecirse, no hará eficaz el pago si
falta tal posesión verdad, V. gr., si ha cometido la ligereza de pagar
703 a quien solo ostenta el documento de un crédito, cuya transmisión
necesita, cuando menos, el endoso u otro requisito cuya existencia
no conste." (8 Manresa, Código Civil, pp. 274-275.)
VOL. 80, APRIL 9, 1948 703
Haw Pia vs. China Banking Corporation It is not hard to demonstrate that the pretended validity of
the payment made by Haw Pia to the Taiwan Bank cannot
The occupant's right and duty of administering the occupied be founded upon either the article or the commen-
territory are governed by international law. * * *
"In so far as the occupant acts within the scope of the authority 704
permitted to him by international law, it is customary f or the
legitimate government, if and when it reacquires possession of the 704 PHILIPPINE REPORTS ANNOTATED
territory, to recognize his measures and give effect to rights
acquired thereunder. If the occupant acts unlawfully, his measures
will not receive that recognition. (McNair p. 320; italics supplied.)
"The right of 'postlimini,' says Vattel, is that in virtue of which tary. Both require good faith on the part of the debtor, and
persons and things taken by the enemy are restored to their former the commentary adds that the payment will not be valid if
state on coming actually into the power of the nation to which they the debtor "ha cometido la ligereza de pagar a quien solo
belong." (Leitensdorfer vs. Webb, I N. M. 34, 44.) ostenta el documento de un crédito, cuya transmisión
necesita, cuando menos, el endoso u otro requisito cuya
The Civil Code provides: existencia no conste." We all know that no indorsement or
other f orm of assignment of the credits in question is
"ART. 1162. Payment must be made to the persons in whose favor asserted to have been made to the Taiwan Bank.
the obligation has been constituted, or to another authorized to Were the payments made in good faith? Most assuredly
receive it in his name." not. Not alone by the precepts of positive law, but by the
most rudimentary principles of natural justice ingrained in

the good conscience of man, it is not good faith, it is not fair, genuine Philippine currency, she contends that she now
it is not right, for a debtor, who before the war solicited and owes her said creditor exactly nothing. In other words, she
received a loan in good, sound Philippine Pesos, to pay it would profit by the illegal and unauthorized acts of the
with the depreciated and ultimately worthless war notes or Japanese occupant under the pretended liquidation. If she
"military pass-money" of the Japanese occupant. If the had done without Japanese intervention what she did with
Japanese army of occupation had not meddled at all with or under it, to say the least she would have committed a
the contractual relations between Haw Pia and the China fraudulent act. We take it that if it had only been possible
Banking Corporation, created before the war when the for the creditor, if informed of what was going on outside
former applied for and obtained the loan or overdraft from the camp, to ask her why she was making payment in those
the Iatter, there could be no question that it would have war notes, she would have replied that she realized it was
been against conscience for the debtor to pay or to offer not the right thing to do but that she was acting under
payment with the Japanese "military pass-money," unless, Japanese pressure. But if now that the pressure has ceased
of course, the creditor voluntarily agreed to that medium of she should assert the legality of the act, and contend that
payment. Now, supposing the Japanese army had ordered she has been discharged thereby, she becomes a "particeps
Haw Pia to pay that debt with those war notes: would that criminis."
order have changed the question of conscience, let alone for It would aid in solving the problem now confronting us,
the moment the legal situation, as between debtor and to pose this question: If the situation were reversed, and
creditor? Could such an order have made right what was the instant debtors were the creditors and the present
essentially wrong? just, what was essentially unjust? fair, creditors the debtors, how would the former like it if the
what was essentially unfair? As between debtor and latter were to claim discharge under identical
creditor, the former's conduct would only have been in good circumstances?
faith, if she had persisted in her determination to pay her
"One who assists another in any manner in carrying out a
creditor (at least after the end of the occupation) in the
fraudulent purpose is' a 'particeps criminis.' It is utterly immaterial
same currency that she had borrowed from it when she was
what means he resorts to. If he invokes and adopts them, to aid in
in need, regardless of the illegal and .unjust interference of
the perpetration of a fraud, he forfeits thereby the countenance of the
the meddlesome invader·if she had treated the
law, and is a joint tort feasor." (Alberger vs. White, 23 S. W., 92, 96;
interference as a matter
117 Mo., 347; italics supplied; 6 Words and Phrases, First Series, p.
705 5185.)
706
VOL. 80, APRIL 9, 1948 705
Haw Pia vs. China Banking Corporation 706 PHILIPPINE REPORTS ANNOTATED
exclusively between her and the latter, not affecting her Haw Pia vs. China Banking Corporation
innocent creditor whose responsible officials were in the
concentration camp, absolutely deprived of any say in the But more than this, the law rightly extends still a wider
matter. protection over the innocent creditor. As held by this Court,
But what is Haw Pia's attitude here? Planted upon the through Chief Justice Arellano, in Panganiban vs. Cuevas,
ground that pursuant to Administrative Ordinance No. 11 7 Phil., 477, 485:
she has paid to the Taiwan Bank, during the occupation, an
"The payment made by Panganiban to the revolutionary
amount in Japanese "military pass-money" equal to her
government of the 1,300 pesos which he should ,have paid to
prewar indebtedness to the China Banking Corporation in

Francisco Gonzalez in order to redeem the property, could not have Haw Pia, vs. China Banking Corporation
extinguished the obligation incurred by him in favor of the latter.
The Supreme Court of Spain, in a judgment rendered on the 28th of legitimate investments? If the debtors, or any of them,
February, 1896, said: 'The payment of the debt in order to made payment with the "military pass-money" because
extinguish the obligation must be made to the person or persons in they verily believed the Japanese would kill them if they
whose favor in was incurred or to his or their duly authorized agent. did not·and not because they wanted to practice a fraud
It follows, therefore, that the payment made to a third person, even upon their creditors by taking advantage of that
through error and in good faith, shall not release the debtor of the opportunity to wipe out their obligations with cheap and
obligation to pay and will not deprive the creditor of his right to ultimately worthless money·; in that case they made the
demand payment. If it becomes impossible to recover what was payment for the exclusive purpose of saving their lives or
unduly paid, any loss resulting therefrom shall be borne by the limbs. They saved both. Does equity still demand that the
deceived debtor, who is the only one responsible for his own acts just rights of the innocent creditors be also annihilated
unless there is a stipulation to the contrary or unless the creditor although this consequence could not have been intended by
himself is responsible for the wrongful payment'." the debtors (who in the present hypothesis are supposed to
have acted in good faith) ? If, again, they made payment
10. Equities of the Case·Question of Conscience. with those war notes, not to thus defraud their creditors
Under No. 2 above we have adverted to the possibility of
but simply because they feared that their mortgaged
the debtors saying that, if they did not pay even only in properties might be auctioned off, we see that they save
Japanese military notes, any of the following consequences those properties. Does good conscience counsel that we
might befall them: confer upon them the special bounty of complete liberation
from their just debts, altogether beyond their intention?
"(1) That they might be punished with death (although
Administrative Ordinance No. 11 contains no such And yet if we are, lastly, to assume that when they made
threat). those payments they intended to avail themselves of
Administrative Ordinance No. 11 in order to pay with a
"(2) That they might be tortured (neither did the different, inflated and ultimately valueless currency what
ordinance contain this threat). they owed their creditors in sound money of this country,,
"(3) That their mortgaged .properties securing their then they acted fraudulently, illegally and inequitably: and
debts might be foreclosed upon (the ordinance did this Court is not here to aid them.
contain this sanction). Granting that neither party is to be blamed for the acts
of the Japanese, the fact remains that it was the debtors
Suppose these debtors, or any of them, acted as they did, who were illegally ordered to pay, they were the victims of
because they were afraid to be killed or tortured or. to lose the illegal order, and while they thereby acquired the right
their mortgaged properties in an auction sale, if they did to lay a claim against the guilty party, they certainly are
not. Will the "equities of the case"·"the question of not authorized to visit the consequences upon the innocent
conscience"·argue in their favor and against the creditors? creditors. So far as these were concerned, their responsible
that is, that we should hold them discharged from their officials were in the concentration camp, and under the law
aggregate obligations amounting to P34,311,330.14, and so long as they were not legally paid, and their rights have
condemn the innocent creditors to the total loss of their not prescribed, they would always preserve their credits.
707 708
VOL. 80, APRIL 9, 1948 707 708 PHILIPPINE REPORTS ANNOTATED

During the deliberation the f ollowing example was given: VOL. 80, APRIL 9, 1948 709
During the occupation the Japanese took away one of the
two telephone apparatus which. a Filipino had in his house, Haw Pia vs. China Banking Corporation
rented from the Telephone Co. It was pointed out that the
one who suffered the damage was the Filipino, :for having ment to the creditors or to another authorized to receive it,
been deprived of the use of the apparatus, and not the they were legally powerless to extinguish the incorporeal,
company. In the first place, while the Filipino was the intangible rights of said creditors. The promissory
prejudiced in that way, the company was also preju diced notes, the mortgage indentures, etc., were but the titles to
by being thus deprived of its property. In the second place, the rights themselves. The former were in the physical
the apparatus was a material thing capable of physical power of the enemy to destroy, the latter were not.
appropriation and removal, whereby the Filipino was If payment in war notes had been offered to said banks
effectively deprived of its use. Whereas in the case of the and they had ref used it, even though the debtors should
debts here in question, they are intangible things, have judicially consigned the said notes, the consignation
incorporeal rights, incapable of physically being taken would have been null and void as against the banks, f or
possession of and wrested from the creditors. All that the the reason that without their voluntary consent to receive
Japanese and the debtors did with respect to them were payment in such different currency·thus effecting a
absolutely vain and futile to take away those incorporeal novation of the contract in this regard·they could not be
rights from the créditos. Thus in Williams vs. Bruffy, 96 U. compelled to receive such payment. In the cases under
S., 176; 24 Law, ed., 716, it was said: consideration the banks have not given such a consent.
Of course, it is perfectly possible that, for varied reasons
"* * * Parties in the insurrectionary territory, having property in and purposes of their own, certain creditors voluntarily
their possession as trustees or bailees of loyal citizens, may in some received or even demanded payment of prewar debts with
instances have had such property taken from them by force; and in Japanese military notes. In such cases there can be no
that event they may, perhaps, be released from liability. Their question of the validity of the payment. And this being so,
release will depend upon the same principles which control in there can be no occasion for another payment, or the debtor
ordinary cases of violence by an unlawful combination too powerful being obliged to pay again. But such is not the case of the
to be successfully resisted. banks involved in this discussion.
"But, debts not being tangible things subject to physical seizure Again, there can be no dispute that contracts voluntarily
and removal, the debtors cannot claim release from liability to their entered into during the occupation in terms of the war
creditors by reason of the coerced payment of equivalent sums to an notes were valid and, during the occupation, would have
unlawful combination. The debts can only be satisfied when paid to been dischargeable in that money; although thereafter they
the creditors to whom they are due, or to others by direction of were dischargeable, if at all, only to the extent of their just
lawful authority. Any sum which the unlawful combination may obligation and value in terms of Philippine currency.
have compelled the debtors to pay to its agents on account of debts (Presidential Executive Order No. 25.)
to loyal citizens, cannot have any effect upon their obligations; they 10-a. The alleged need of upsetting sales of properties in
remain subsisting and unimpaired. * * *" (Italics supplied.) order to raise military notes for payment of prewar debts, if
such payments were declared invalid.
The Japanese could not only do the physical acts performed
It has been suggested during the deliberation that if
by them in pursuance of the so-called liquidation but could
payments with military notes of prewar debts were to be
even burn or otherwise destroy the instruments of the
declared invalid, there would be need of also invalidating
credits due the banks; but without valid pay-

sales of properties which might have been made by the existing at the time of the enactment. It was precisely for
debtors in order to raise military notes for effecting such this reason that the passage of that validating enactment
was attempted. The legislature never passes laws enjoin-
710
711

Haw Pia vs. China Banking Corporation VOL. 80, APRIL 9, 1948 711
payments, and in case of subsequent transfers of the same
properties there would also be need of cancelling these. ing the people "to consider valid" already valid transactions
There is absolutely no ground for this point for the simple pursuant to already existing legislation.
reason that any such sales or transfers of property were Thereafter, the executive branch of the government
voluntarily made, as the Japanese never ordered anybody which, as is well known, controls the Board of Directors of
to sell his property in order to pay his prewar debts, or any the Philippine National Bank, withdrew the appeal of said
debts of his for that matter. The truth of the matter is that bank in civil case No. 71200, Manila Court of First
if such sales were made for effecting such payments, it Instance, Milne vs. Philippine National Bank, wherein the
must have been because the seller considered that it was trial court had rendered judgment compelling the bank to
worthwhile to make the sale and raise the requisite pay to plaintiff Milne the amount of the latter's prewar
amount of military notes to pay his prewar debts. It might deposit, despite the seizure of said deposit by the Japanese
have been due to a desire to save mortgaged properties Military Administration during the occupation. That was a
securing the prewar debts, which were considered more clear recognition by the executive department of the
valuable than the properties sold in order to redeem them. invalidity of such seizures of alien enemies' credits. As a
The sale might have been effected because when the war consequence, there seems to be no dispute that the
notes were already much depreciated until they bordered Philippine National Bank has paid all of its American and
on complete worthlessness, any small item of real or British depositors notwithstanding the seizure of their
personal property would bring in thousands of pesos in deposits by the Japanese Military Administration.
military notes sought to wipe out the face value of prewar 12. The alleged ratification:
obligations in sound Philippine money. It is believed to be Amicus curiÕ Recto on page 15 of his printed
of common knowledge, and therefore within judicial notice, memorandum states as follows:
that during 1944 a suit or a dress could sell for as much as
"Lastly, it need be stated that during the occupation all the 'creditor'
P4,000 in war notes; a chicken would sell for thousands of
banks including the China Bank allowed, under authority given by
pesos in war notes, and any small item of property would
the Japanese Military Administration, withdrawals by their
bring in ridiculously fabulous prices.
depositors up to certain limits. The amounts of such withdrawals
11. View and attitude of legislative and executive
stand now credited in favor of said banks in their books and have
branches of Philippine Government after liberation.
been considered, especially by the said banks, as valid to the full
The provision of section 1 of Commonwealth Act No. 727
extent of the amounts represented on the face of the Japanese
(which, however, never became law due to the veto of
warnotes withdrawn. At least, no indication has yet been shown
President Truman) that payments in Japanese military
that the said banks would adopt any other attitude towards said
notes, war notes or military pass-money, as they have been
withdrawals. In fact, speaking for his clients, Judge DeWitt is
variously called, of prewar debts "shall be considered
reported to have so stated in the course of the congressional
valid," evidently shows that the Philippine Congress did
hearings in the Philippine Congress on H. G. No. 437, commonly
not consider such payments already valid under the laws

known as the Fiat Money Bill, and further admitted that said on account or in satisfaction of a debt and being thereby precluded
withdrawals were paid out of the collections made as aforesaid." in respect thereto from afterwards suing the debtor. "In Fletcher
Moulton L. J. in Hinachand Punamoband vs. Temple, 1911, 2 K. B.,
No evidence of record exists to support the fact above 330, the Court said:
stated, but in the records of the official proceedings of the
Committee on War Claims of the Philippine Congress, two " 'The way in which this is worked out in law may be that it would be an
letters, one dated September 5, 1946, and the other abuse of the process of the Court to allow the creditor under such
September 6, 1946, appear and from them amici curiae circumstances to sue, or it may be, and I prefer that view, that there is an
extinction of the debt.'
712
"Abbot C. W., in Welby vs. Drake, 1825 I. G. & P., 557, said that
it would be a fraud, if after accepting payment from a third party a
creditor could sue the debtor f or the debt.
Haw Put, vs. China, Banking Corporation "It is our view that such payments by the Bank of Taiwan should
be regarded as payments by a negotiorum gestor under the
DeWitt, Perkins and Ponce Enrile have quoted excerpts on provisions of articles 1888 and 1901 of the Civil Code, and in closing
pages 22-25 of their printed memorandum. Both letters accounts between the Bank of Taiwan and any foreign banks for
appear to have been written by Atty, C. A. DeWitt of the whose ac counts such payments were made, the Bank of Taiwan
same firm. The excerpt from the letter of September 5, would receive credit for such payments, without in any way
1946, is as follows: becoming- a recognized agent of the foreign bank for whose account
the payment was made.
"During the hearings, a great deal was said as to withdrawals from
the Bank of Taiwan by depositors or créditos of the foreign banks. 713
We have secured the figures on those withdrawals, with the
exception of those corresponding to the China Banking Corporation, VOL. 80, APRIL 9, 1948 713
which we have not been able to secure as yet. We shall send them
on to the Committee as soon as they are available, as we
understand that they are of considerable importance since they
In a remote case that such payments should exceed the
represent some millions of pesos which were forcibly debited to
indebtedness resulting from the settlement of accounts, such excess
Chinese depositors and credited to Chinese associations, through
would go to the Alien Property Custodian as an enemy asset."
which credits the Bank of Taiwan made forcible levies upon Chinese
depositors.
The excerpt from that of September 6, 1946, reads:
"As to the other six banks, the total withdrawals aggregated
P3,514,254.22. Of this amount, the six banks have recredited their "TO THE COMMITTEE ON WAR CLAIMS,
former creditors the amount of P1,586,313 because it was found Congress of the Philippines
that the withdrawals thereof were not voluntary on their part The Manila
question is still under examination as to the remaining
withdrawals. Undoubtedly, the figure of P1,586,313 will be "H. B. No. 437
increased, but, as it stands today, the net withdrawals (gross (Fiat Money Bill)
withdrawals less reinstatements) is P1,927,941.22.
"GENTLEMEN :
"Of course, where the withdrawal is voluntary, then no court will
permit the withdrawing creditor to collect the same amount again. "In Part III of my letter to you of yesterday, I discussed the question
The case is one of a creditor receiving from a third party a payment of the status of withdrawals from the Bank of Taiwan by depositors

or creditors of the foreign banks, and stated that we had then leaves a balance of P4,010,366.05 as of September 6, 1946,
secured the figures on those withdrawals, with the -exception of which last figure was at the time the amici curiÕ's
those corresponding to the China Banking Corporation which we memorandum was prepared still under examination as to
had not been able to secure as yet and promised to send them on to the voluntary character of the withdrawals. We do not find
the Committee as soon as they are available. We have now received even from the letter of September 5, 1946, that the banks
them. The total withdrawals from the Bank of Taiwan, took credit for those withdrawals, and there is no
corresponding to the China Banking Corporation, were independent evidence of this fact. The amici curiae,
P5,354,312.48. Of this amount P3,271,887.65 had been reinstated speaking for the banks, now affirm that pursuant to article
up to July 31, 1946, leaving a net balance of withdrawals of 1163 of the Civil Code those withdrawals by depositors or
P2,082,424.83. payments to creditors would only be valid against the
"With these figures in hand, we may now give the total figures on banks in so far as they may have been beneficial to the
withdrawals for all seven foreign banks. The total withdrawals latter. Commenting on the same article, Manresa has the f
aggregated P8,868,566.70. Of this amount, the foreign banks have ollowing to say:
recredited to their former creditors a total of P4,858,200.65, because
it was found that the withdrawals thereof were not voluntary on "Pago hecho a un tercero.·Este pago puede revestir diferentes
their part. The question is still under examination as to the formas, de las cuales dependerá su mayor o menor eficacia. "El
remaining withdrawals. Undoubtedly, the figure of P4,858,200.65 supuesto de que expresamente se ocupa el Código en este lugar, por
will be increased, but, as it stands today, the net withdrawals (gross ser el que mayores dificultades puede ofrecer, es el de que se pague
withdrawals less reinstatements) are P4,010,366.05. a un tercero en favor del cual nada se hubiese estipulado, ni al cual
"The second paragraph, Part III, of my letter of yesterday should se hubiese designado en la obligación, ni autorizado con posteridad
be amended to read accordingly." para recibir el pago de aquella. Refiriéndose a tal supuesto, exige el
Código como condición de validez para el pago, y fija como medida
It now appears that Atty. Recto was referring to the facts de la eficacia de este, el mismo requisito que en el párrafo y caso
contained in the above quoted excerpts. From these facts it anterior del propio artículo deja establecido: la utilidad de pago
results that the books of the Taiwan Bank point to para el acreedor. Con motivo de esto y refiriéndose a la prueba de tal
payments for account of these seven alien banks totalling utilidad, repetimos lo que antes hemos dicho: que esa prueba
P8,868,566.70, said to have been made to depositors of said incumbe al deudor que pagó, y en este caso con motivo más poderoso
banks and others, the books also showing the debit entries aun que en el anterior porque la utilidad para el acreedor de un
against said depositors and others in their accounts. They pago hecho a tercera persona es tan dificil, que no puede
do not show, however, the origin of the money with which presumirse, y necesita una prueba cumplida de parte de aquel a
those payments were effected. They quien su demonstración ha de aprovechar." (Italics supplied.)
714 Applying the article and the commentaries to the instant

case, the third person would be the Taiwan Bank, and the
714 PHILIPPINE REPORTS ANNOTATED measure of the validity or efficacy of the payment as
against the banks would be the benefit or utility
715
show that of the aggregate sum of P8,868,566.70 the banks
have recredited their depositors and other creditors with VOL. 80, APRIL 9, 1948 715
P4,858,200.65, as of September 6, 1946, for the reason that
it was discovered that the withdrawals thereof were not
voluntarily made by said, depositors and creditors; this

which they might have meant to them, and that is no other

than the face value of the amount in Japanese military Court seem to think, with a view to avoiding useless
notes which might have been voluntarily withdrawn by the multiplicity of suits, the following norms are submitted for
depositors or voluntarily received by the creditors from the the purpose:
Taiwan Bank and which the latter, as a sort of negotiorum
gestor, paid out to them. But this falls far short of (1) Payments of prewar debts with Japanese military
constituting a ratification for the simple reason that notes during the occupation, voluntarily received by
ratification necessitates the exercise of the will of the party the creditors are valid, because the creditors, who
ratifying, while the provisions of article 1163 of the Code had the right to refuse such payments, agreed to
are independent of such will. Upon the whole, there is a receive them, thus pro tanto novating their
complete absence of evidence of ratification. contracts with the debtors;
The transcript in this case is only ten pages long and (2) But it was just as obviously beyond the power and
does not contain the testimony of any witness but merely right of the debtors to change, against their
stipulations of facts between counsel, and identification of creditors' will, the currency in which their
exhibits. The documentary evidence is likewise brief and obligations were justly and legally dischargeable
likewise fails to furnish any evidence of such ratification. and, by compelling their creditors to receive the
Indeed, the letter of the defendant China Banking different currency·especially if this was an
Corporation under date of September 19, 1945, made a inflated or practically worthless one·to virtually
written demand (Exhibit 2) upon plaintiff Haw Pia for the extinguish their credits, for as was declared by
immediate payment of her indebtedness to the bank in the Chief Justice Arellano in Panganiban vs. Cuevas,
form of overdraft "amounting to P5,103.35 as of December supra:
26, 1941, together with interest thereon at the rate of 9 per
cent per annum from said date compounded monthly." This "* * * Un crédito no se extingue contra la voluntad del acreedor, sino
amount is exactly that stated in plaintiff's Exh. "Z" under por sentencia judicial ó la prescripción de toda acción." (7 Jur. Fil.,
the column entitled "Amount". This shows just the opposite 501.)
of ratification. It shows that the bank did not recognize any
validity in the supposed liquidation in so far as it was (3) Where the debtor was compelled to make such
concerned. Naturally, the question having been submitted payment and the creditor to receive it under enemy
to the courts and pending decision thereby, neither party duress, and one or the other, or both should have
could be expected to make any material alterations in their thereby suffered any prejudice in his or their
books of account·they, perforce, have to await the final respective rights, then such one, or such other, or
decision of the courts. both was or were the victim or victims of the
enemy's illegal acts, and should suffer the
The writer believes that, the issues of the instant case
not requiring it, we should not here attempt to lay down respective prejudice thus caused him by the enemy,
rulings or make pronouncements calculated to serve as with the corresponding right of action against the
guides for possible future disputes. However, if the majority latter;
should opine otherwise, as some members of the (4) But where, as here, the debtor alone acted, whether
in obedience to or independently of the orders of the
716 Japanese occupant, his acts and those of said
occupant in the premises cannot affect the rights of
716 PHILIPPINE REPORTS ANNOTATED the creditor, without prejudice to his right of action
against said occupant.

(5) Any erroneous, even if bona, fide, belief of the power during the occupation to make prewar debts
debtor that the Japanese occupant had the power to payable in the occupation war notes, without either
do what he did in respect to the afore-mentioned having induced the other into that belief, and both
prewar creditordebtor relations, did not validate an acted in accordance therewith, neither should be
otherwise invalid payment, just as the erroneous, allowed to undo what has thus been done, each
even if bona fide, belief of being bound to shoulder any prejudice that his own
voluntary acts may have caused him,·all on the
717 strength of the above quoted doctrine in
Panganiban vs. Cuevas, supra.
VOL. 80, APRIL 9, 1948 717 (7) Where the creditor has not given his voluntary
consent to receive war notes during the occupation
Haw Pia vs. China Banking Corporation in payment of a prewar obligation due him, and
where the
Panganiban (in Panganiban vs. Cuevas, supra) that
the Revolutionary Government had the power to 718
collect or receive from him the 1,300 pesos that he
paid it instead of D. Francisco Gonzalez, did not
extinguish his obligations contracted in favor of the
latter, because, said Chief Justice Arellano; Haw Pia, vs. China Banking Corporation
"* * * como se ha declarado en sentencia de casación de 28 debtor has taken, or attempts to take, advantage of
de Febrero de 1896, 'para que el pago de lo debido extinga the orders of the Japanese occupant in order to
las obligaciones, debe hacerse a las personas en cuyo favor force said creditor to receive such payment, with or
estuvieren constituidas o a cualquiera otra autorizada para without judicial consignation in the courts, such
recibirlo; siguiendose de ello que la entrega de lo adeudado debtor would be acting in bad faith, illegally,
hecha a un tercero siquiera se haga por mero error y de fraudulently and against good conscience, and any
buena fe, no libera al deudor de su obligación de pagar ni judgment in his favor would be nothing short of
perjudica al acreedor en su derecho a cobrar, y que si por la legalizing, sanctioning and putting a premium on
imposibilidad de recuperar lo indebidamente pagado, such bad faith, fraud and iniquity.
resultasen perjuicios irreparables, recaen estos sobre el (8) Hypothetically conceding that the Japanese
deudor engañado, como único responsable de sus propios occupant made the military notes legal tender by
actos, a no mediar sobre este punto pacto en contrario, o virtue of the Commander in Chief's proclamations
culpabilidad del acreedor que origine responsabilidades al of January 10 and February 6, 1942, then it must
mismo imputables.'" (7 J. F. 501-502; italics supplied.) The also be recognized that by the same proclamation
reason for the law would be the same here, whether the and by the same authority the Philippine peso was
error relates to the powers of the Taiwan Bank as supposed simultaneously made legal tender, since the said
liquidator, or to the general powers of the Japanese proclamations expressly allowed the continued use
occupant; hence, its provisions should be the same in the of the Philippine peso alongside with the military
instant case; notes; and considering that said Commander in
(6) Where both prewar creditor and debtor honestly Chief did not direct the inhabitants (not covered by
Administrative Ordinance No. 11) to pay their
believed that the Japanese occupant had the legal
obligations among one another, much less prewar

obligations, consequently leaving the debtors at after the approval of the said occupation
liberty to pay such obligations or not and, if they constitution in October, 1943, could not possibly be
did, to pay them in either of the two currencies, recognized as valid upon the basis of such parity
which gives rise to the necessary inference that the and legal tender character.
occupant never ordered such prewar debtors to act (9) Even where the creditor refuses to receive a legal
unjustly, fraudulently, and in bad faith toward their tender in settlement of his credit, his right is not
creditors by paying the latter with cheaper or cancelled thereby, but will merely be subject to be
practically worthless money; considering that any outlawed by the statute of limitations, if he persists
such payments with war notes of prewar debts in his refusal during the statutory period.
owed in Philippine currency forced or attempted to
be forced by debtors upon their creditors, not under "* * * If a debtor offers a legal tender in settlement of his debt, the
orders of the occupant but as voluntary acts of the creditor is obligated to accept this or receive nothing; the debt will
debtors, were acts done in bad faith, fraudulently not be cancelled by the creditor's refusal to accept duly tendered
and unjustly; considering that such prewar debtors legal tender, but it will in time be outlawed by the statute of
did not have to pay their prewar debts during the limitations, if the creditor persists in his refusal to take the legal
war, which by operation of law suspended the due tender offered * * *." (Westerfield, Money, Credit and Banking, page
dates of such debts and suspended the earning of 15.)
interest thereon; considering further that when the
Japanese Government approved the constitution of Judgment reversed.
the occupation "Republic," in whose Article XI,
section 8, it was provided that "all property rights _____________
719
VOL. 80, APRIL 9, 1948 719

Raymundo vs. Gonzales
© Copyright 2021 Central Book Supply, Inc. All rights reserved.
and privileges acquired by any person, entity or

corporation, since the outbreak of the Greater East
Asia War, shall be subject to adjustment and
settlement upon the termination of the said war,"
which provision necessarily comprised acts
consisting in payments with military notes of
prewar debts, whatever supposed parity might have
existed between the Philippine peso and the
military note peso, and therefore whatever
supposed character as legal tender the said war
notes might have had before, were as a necessary
consequence abolished thereby: payments of prewar
debts with military notes thus forced or attempted
to be forced by such debtors upon their creditors

Haw Pia vs. China Banking

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Haw Pia vs. China Banking

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PHILIPPINE REPORTS ANNOTATED VOLUME 080 9/4/21, 8:05 PM PHILIPPINE REPORTS ANNOTATED VOLUME 080 9/4/21, 8:05 PM

VOL. 80, APRIL 7, 1948 605

Haw Pia vs. China Banking Corporation

tion or appropriation by the belligerent occupant not only of

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Treasury shall be settled by Congress," the owners of the

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11. ID.; ID.; JAPANESE WAR NOTES; LACK OF

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discharged by the payment of coined metals, but neither the

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FERIA, J.; VOL. 80, APRIL 9, 1948 613

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614 PHILIPPINE REPORTS ANNOTATED

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"But the desire to eliminate the financial and commercial influence

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619 The Combined Directive of April 28, 1944, for Military

620 PHILIPPINE REPORTS ANNOTATED

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VOL. 80, APRIL 9, 1948 623

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VOL. 80, APRIL 9, 1948 625

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violate article 46 or any other article of the Hague

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the Government. And this Court, in Rogers vs. Smith Bell

VOL. 80, APRIL 9, 1948 633

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Haw Pia vs. China Banking Corporation 635

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banks were nationals, as a payment on account of the sums

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liver to her transfer certificate of title No. 47634, with

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(d) Que si al ocupante militar de un territorio enemigo no le

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jurídicamente. Haw Pia, vs. China Banking Corporation

644 PHILIPPINE REPORTS ANNOTATED

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VOL. 80, APRIL 9, 1948 645 646

Haw Pia vs. China, Banking Corporation

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Appellant Haw Pia principally relies on Administrative

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VOL. 80, APRIL 9, 1948 651 652 PHILIPPINE REPORTS ANNOTATED

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safety, while respecting, unless absolutely prevented, the laws in consent.

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supplied.) embracing all deposits or securities held by it, opining that

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* * * * * * * Haw Pia vs. China Banking Corporation

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